U.S. stock futures trimmed earlier gains as market uncertainty grew ahead of the first trading day after Donald Trump’s inauguration. U.S. markets were closed on Monday in observance of Martin Luther King Jr. Day.
The volatility followed Trump’s announcement that his administration could impose a 25% tariff on imports from Mexico and Canada, starting as soon as February 1. This news caused futures for the Dow, Nasdaq 100, and S&P 500 to reverse direction, with all three indexes trading flat after earlier increases.
In response, the U.S. dollar index, which tracks the greenback against a basket of other currencies, declined by 0.8%, reflecting investor concerns over potential disruptions to trade.
Despite a solid end to the week for major indexes, with the Dow Jones Industrial Average and S&P 500 enjoying their best performance since the November election, Trump’s tariff rhetoric stirred market unease. Many analysts warned that escalating tariffs could lead to a broader trade war, raising risks for global markets.
“Market volatility is expected to increase with Trump’s second term, but the overall economic environment remains favorable for financial markets,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management. “The U.S. economy remains strong, corporate profits look promising, and the Federal Reserve continues its easing policies, making U.S. equities and quality bonds attractive.”
Bond yields, which have an inverse relationship with stock prices, fell sharply last week. The U.S. 10-year Treasury yield dropped to 4.6% after peaking at 4.8% on Tuesday. The two-year note yield closed the week at 4.3%. Higher bond yields typically make bonds more appealing than stocks, dampening stock market performance.
Meanwhile, oil prices saw a 1.3% decline following the implementation of a ceasefire agreement between Israel and Hamas. This truce lessens the threat of further escalation in the Middle East, which is home to a significant portion of global oil production.
International markets displayed mixed results. Japan’s Nikkei index remained unchanged on Tuesday, while Hong Kong’s Hang Seng gained 1%. European markets were mostly positive: Germany’s DAX rose by 0.6%, and the U.K.’s FTSE 100 increased by 0.2%.
