Tariffs and weak data rattle markets

[UNITED STATES] US stock markets closed on a mixed note Wednesday amid growing concerns about the economic fallout from elevated trade tariffs and weak service sector data. The S&P 500 ended essentially flat, while the Nasdaq edged up modestly and the Dow slipped. Investor optimism from earlier in the day faded as fresh economic indicators revealed growing signs of strain on business input costs and hiring.

A key services index contracted for the first time in nearly a year, and US private payrolls showed the slowest growth in over two years. Analysts attributed the data largely to the cumulative impact of tariffs, particularly those targeting steel, aluminum, and other imported goods. With President Trump’s trade ultimatum deadlines looming, market watchers remained alert for developments in US-China negotiations.

Despite these headwinds, May was still a strong month for stocks overall, with tech-driven gains and softened trade rhetoric helping buoy the S&P 500 and Nasdaq. Optimism about 2026 earnings also led Barclays and other brokerages to raise their year-end forecasts, though the S&P 500 remains slightly below its February peak.

Implications for Business, Consumers, and Policy

Businesses Face Cost Pressures and Hiring Challenges

With tariffs pushing up input costs—particularly in the services sector—companies are facing tighter margins and may begin passing costs onto consumers. Sluggish private hiring growth signals growing caution among employers, potentially affecting investment and expansion plans, especially in sectors sensitive to trade exposure.

Consumers Could See Price Hikes Amid Weak Labor Momentum

Inflationary pressures stemming from tariff costs may show up in higher prices across services and consumer goods. Simultaneously, weakening job creation could slow income growth, creating a drag on household spending. The combination may dampen consumer confidence if labor data continues to disappoint.

Policy and Trade Outlook Remain Critical Market Drivers

With Trump’s tariff deadlines approaching and potential new levies hanging over global trade partners, geopolitical developments remain a key risk factor. A prolonged tariff standoff with China could not only weigh on global supply chains but also force central banks to rethink monetary policy amid softening growth signals.

What We Think

The current market landscape reflects a precarious balance between cautious optimism and structural concern. While upbeat earnings in sectors like AI infrastructure and brokerage upgrades to the S&P 500 suggest confidence in longer-term fundamentals, immediate macro indicators are flashing warning signs. Services sector contraction and weak job growth shouldn’t be ignored—especially when layered atop a volatile trade policy environment.

Investors appear to be treating tariff rhetoric with growing seriousness, as evidenced by muted volume and the S&P 500’s inability to sustain early-session gains. Meanwhile, sector-level performances—from Hewlett Packard’s AI-driven surge to Tesla’s sales drop in Europe—highlight the uneven impact of current market forces.

Ultimately, trade policy remains the most significant swing factor. If upcoming negotiations fail to yield progress, continued volatility is likely, especially in consumer-facing and manufacturing sectors. Policymakers and businesses alike will need to brace for further turbulence unless clear direction emerges on tariffs and global economic cooperation.