Trump tariff plan rattles markets
On the latest edition of Market Week in Review, Sam Templeton, manager, global communications, and Mark Eibel, director, client investment strategies, discussed market reaction to U.S. President Donald Trump’s plan to impose tariffs on steel and aluminum imports.
Markets react to Trump announcement on tariffs
Financial markets reactively negatively to Trump’s tariff announcement, Eibel said, with the Dow Jones Industrial Average closing 420 points lower on March 1, while the S&P 500® Index dropped 1.3% the same day. “Clearly, at least in the short-term, the market is not exactly in favor of possible tariffs—at least in the way they’re laid out now,” he stated. In Eibel’s view, Trump’s announcement can be thought of as the latest negotiating point within an ongoing broader conversation on trade. As evidence, he pointed to the current North American Free Trade Agreement (NAFTA) negotiations, the Brexit talks between the UK and the rest of Europe, and trade discussions between the U.S. and China. “With all the trade talk that’s been occurring, I don’t think the Trump administration’s new tariff plan should come as much of a surprise,” he concluded—“but it’s quite obvious the market doesn’t like the language behind it.”
Key takeaways from Powell’s testimony to the U.S. Congress
New U.S. Federal Reserve (the Fed) Chair Jerome Powell addressed Congress twice the week of Feb. 26—with two main takeaways coming out of the meetings, Eibel said. The first? “Powell reaffirmed that right now, we can expect three interest rate increases this year—and the Fed might be leaning toward a fourth,” he said, adding that markets reacted strongly to the somewhat hawkish tone Powell struck. The second takeaway for investors is that Powell downplayed putting too much emphasis on one or two wage inflation numbers, Eibel said—such as the 2.9% increase in hourly earnings seen in January’s employment report from the Bureau of Labor Statistics. That said, next week’s report—which will provide answers as to how the U.S. labor market performed during February—will be very important, Eibel noted.
Meetings on deck for ECB and Bank of Japan
Broadening the conversation beyond the U.S., Eibel noted that both the European Central Bank (ECB) and the Bank of Japan will hold monetary policy meetings the week of March 5. Both central banks are starting to wind down their quantitative easing (QE) programs, Eibel said, so he expects the dialogue to center around this. “There’s still a very low interest-rate policy in both Europe and Japan—so what markets will really be looking for here is any additional clues or language relating to the banks’ QE strategies going forward,” he said.
S&P 500 tech sector reaches highest weighting since dot-com bubble
Closing the segment with a look at the S&P 500® Index, Eibel noted that the technology sector now accounts for roughly 25% of the index. This is the highest weighting for the sector since the dot-com bubble, per data from the Bespoke Investment Group, Eibel said—but in his view, the comparisons end there. “Multiples on technology during the tech bubble around the year 2000 were much higher than they are now,” he stated, adding that in his opinion, many of the companies within the tech sector have a larger impact on daily life now than they did back then.
“At Russell Investments, we do believe that within the U.S. market, there are overvalued and undervalued areas,” Eibel said—“and while technology is certainly one of the ones we’d flag as overvalued, we don’t believed it’s to the level we saw during the dot-com era.”