Introduction to the Market Downturn
Stocks sank in afternoon trading on Wall Street Tuesday after U.S. President Donald Trump threatened to hit eight NATO members with new tariffs as tensions escalate over his attempts to assert American control over Greenland. The S&P 500 fell 2.1 per cent Tuesday, its biggest drop since October. It was the first time U.S. markets could react to the escalation from Trump, as they were closed on Monday for Martin Luther King Jr. Day.
Market Performance
The Dow Jones Industrial Average fell 877 points, or 1.8 per cent, as of 2:46 p.m. ET. The Nasdaq composite slumped 2.4 per cent. European and Asian markets also fell. Canada’s main stock index was weighed down by broad-based losses. The S&P/TSX composite index was down 340.68 points to 32,750.28. The Wall Street losses were widespread and led by technology stocks, many of which already have more influence over the direction of the market because of outsized values. Retailers, banks and industrial companies also fell sharply.
Notable Stock Performances
Nvidia, one of the most valuable companies in the world, plunged 3.6 per cent. Amazon fell 3.7 per cent, JPMorgan Chase fell 2.9 per cent, and Caterpillar lost three per cent. Companies that focus on consumer staples held up better than most of the market. Colgate-Palmolive rose 1.5 per cent and Campbell’s rose 1.7 per cent.
Trump’s Tariff Threats
Trump said Saturday that he would charge a 10 per cent import tax starting in February on goods from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland. European markets also fell and Treasury yields moved higher in the bond market. The annual combined imports from European Union nations are greater than those from the top two biggest individual importers into the U.S., Mexico and China.
Reaction Across Europe
Trump’s threats have sparked outrage and a flurry of diplomatic activity across Europe, as leaders consider possible countermeasures, including retaliatory tariffs and the first-ever use of the European Union’s anti-coercion instrument. The trade and political conflict with Europe is heating up just as world leaders meet at the World Economic Forum annual meeting in Davos, Switzerland, this week.
Impact on Commodities and Cryptocurrency
The price of U.S. crude oil rose 1.5 per cent to $60.34 US per barrel. The price of Brent crude, the international standard, rose 1.3 per cent to $64.76 US. Silver and gold both rose to records again as investors sought safety amid heightened geopolitical tensions. Gold surged 3.7 per cent while silver soared 6.9 per cent. The trade tensions apparently short-circuited a recent rally in bitcoin. The cryptocurrency rose above $96,000 US late last week but has dropped back to around $89,300.
Conclusion
The threat of new tariffs from the U.S. on NATO members has sent shockwaves through the global market, leading to significant drops in stock prices and increases in commodity prices. As the situation continues to unfold, it remains to be seen how the conflict will be resolved and what the long-term effects will be on the global economy. One thing is certain, however: the uncertainty and unpredictability of the situation are causing significant volatility in the markets, making it difficult for investors and businesses to plan for the future.
