“This is just the latest worry to put on the fire for investors,” Ryan Detrick, senior market strategist at LPL Financial, wrote in a note to clients. “The big question at the end of the day though is can we really fight two trade wars at the same time?”
Some analysts expressed concern that Trump is imposing tariffs in response to immigration problems, not economic or trade ones.
“Tariffs can be thrown around as an economic bomb for anything now,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients. “Global growth rates will only continue to suffer.”
Kristina Hooper, chief global market strategist at Invesco, called it an “alarming” decision by the US administration to open up a “new and unexpected frontier” by using tariffs as a “weapon” beyond just trade policy.
“Markets don’t like surprises and this is a big surprise,” Hooper wrote in a note.
Peso, Mexican stocks plunge
The tariffs on Mexico will be “highly disruptive,” Goldman Sachs analyst Alec Phillips wrote in a note to investors Friday. The bank warned the new trade tensions could hurt the ability to enact a new North American trade deal to replace NAFTA.
Investors exited Mexican assets in response to the news.
Investors flock to bonds, gold
Signs of worry abounded on Wall Street.
Cash poured into ultra-safe government bonds, driving the 10-year Treasury yield to 2.17%. The benchmark bond rate briefly plunged below 2.15% for the first time since September 2017. Just a month ago the 10-year yield was sitting at 2.5%.
Gold, which tends to rise when investors are scared, gained nearly 1% and flirted with the $1,300 level.
US oil prices declined nearly 3% to $55 a barrel, driven lower by trade tensions and concerns about excess supply.
Global growth concerns
Beyond the trade front, investors were also unnerved by weak economic numbers overseas.
Activity in China’s vast factory industry fell to a three-month low in May. New orders declined, likely reflecting pressure from the trade war.
In Germany, retail sales unexpectedly declined. That sent the German 10-year bond yield plunging deeper into negative territory to a record low.
“We don’t want to lose the German consumer,” Boockvar wrote. “The domestic side is what’s kept their economy out of recession.”
Longest weekly losing streak since 2011
The Dow is on track to close lower this week, for the sixth week in a row. That would be the worst losing streak since summer 2011. With one trading session left, the Dow has fallen nearly 5.4% in May. The last time stocks fell in May was in 2012, when the Do w fell 6.2%. This has been the worst month since December, when the Dow fell about 8.7%
US stocks have slumped and bond yields have plunged in part because of worries about the escalating trade war between the United States and China. Investors fear the tit-for-tat tariffs — and threats of non-tariff retaliation — will slow economic growth, dent consumer confidence and derail business investment.
Imposing tariffs on Mexico may only exacerbate those trade concerns. The US Chamber of Commerce has estimated that about 6 million US jobs depend on trade with Mexico.