Stocks trade slightly higher despite tariff uncertainty, slower hiring
U.S. stocks closed sharply higher Wednesday, overcoming tepid early trading after the White House announced a one-month tariff reprieve for automobiles.
The broad S&P 500 added 64 points to close at 5,842.63. The Dow added 486 points, 1.1%, to close at 43,006.59, and the tech-focused Nasdaq Composite surged more than 267 points or 1.5%, finishing at 18,552.73.
Stocks closed at the lowest level since the November presidential election on Tuesday as investors fretted about an escalating trade war. Tariffs of 25% on Mexican and Canadian goods and an additional 10% tax on Chinese goods, bringing the total to 20%, went into effect, and the president told Congress that he was committed to his strategy. "We've been ripped off for decades by nearly every country on Earth, and we will not let that happen any longer," Trump said.
Yet the administration seemed to walk back some of that rhetoric on Wednesday. In the morning, Commerce Secretary Howard Lutnick told Bloomberg News that the president might "consider giving some relief" to some industries, and in the afternoon, the White House announced the auto exemption.
Are we in for 'stagflation'?
Some analysts fear tariffs will do more damage than simply making some consumer goods more expensive. Concerns about stagflation - a period of slow growth but high inflation - are heating up among investors, economists, and the financial press.
On Wednesday, a report from payroll provider ADP showed private sector employers added just 77,000 jobs in February, well below the consensus of 140,000, and the lowest since July.
“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” ADP noted in a release. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
And a closely-watched tracker of economic activity from the Atlanta Fed now shows the economy in deep contraction in the first quarter.
"Uncertainty is crimping confidence," said Jack Ablin, chief investment officer and founding partner of Cresset Capital. "Investor sentiment, an important ingredient for market risk taking, is plunging. At the same time, consumer confidence, an important ingredient for spending, has plunged as well."
Comments from corporate leaders reinforce a sense of hesitancy among consumers. On Tuesday, retailer Target told analysts to expect a “meaningful” decline in profits in the first quarter due to “ongoing consumer uncertainty,” soft sales in February and concerns around tariffs. On Wednesday, apparel retailer Abercrombie & Fitch said its 2025 operating margin would be slashed nearly in half by the effects of tariffs announced already. Shares closed more than 9% lower.
Yields on U.S. government bonds have tumbled in recent weeks as investors increasingly price in a softening economy. The benchmark 10-year note has lost about 30 basis points since the start of the year.
Reasons for optimism
Still, some analysts remain optimistic.
“Despite the recent selloff, there are several reasons to remain positive on U.S. stocks,” wrote Nicholas Colas, co-founder of DataTrek Research, in a note out Wednesday morning.
“Oil prices are dropping, and it’s hard to have a recession when energy prices decline,” Colas continued. “Long term yields are also moving lower, reducing the cost of debt financing. The dollar is weakening, a positive sign about global investor sentiment. Rate cut expectations are rising, a useful counterweight to a slower economy. Lastly, U.S. equities have not seen unusually high volatility. While we expect markets to remain choppy this month, we remain positive on U.S. large caps.”
A reading on service sector activity from ISM was higher than economists had forecast, and also higher than in January, and the 10-year gained five basis points during the trading session Wednesday.
And Ablin told Paste BN, "I'm optimistic that expectations are so low right now."
This story has been updated with new information.