Markets jitter as trade tensions and weak data weigh

[UNITED STATES] Wall Street experienced mixed performance on Wednesday as investors weighed weak economic data against ongoing trade negotiations. The Dow Jones Industrial Average dipped 0.2%, ending a four-day winning streak, while the Nasdaq Composite rose 0.3% on tech sector strength. Treasury yields tumbled sharply, with the 10-year yield falling to 4.36%, as markets reacted to a dismal ADP jobs report showing only 37,000 private-sector hires in May—the lowest in over two years—and a contraction in the U.S. services sector.

Trade tensions remained central to market sentiment. The U.S. doubled steel and aluminum tariffs to 50%, complicating negotiations with Europe, while China’s restrictions on critical mineral exports threatened global supply chains. Investors eyed potential talks between Presidents Trump and Xi Jinping, though Trump’s social media remarks underscored the challenges of resolving trade disputes.

Commodity markets reflected broader uncertainty: oil prices dropped on inventory concerns, while gold rose 0.6% as a safe-haven asset. European stocks advanced despite weak regional economic data, with Germany’s DAX hitting a record high after corporate tax cuts.

Implications

For Businesses: The hiring slowdown and services sector contraction signal economic caution, likely delaying corporate expansion plans. Companies reliant on imported metals or Chinese minerals face mounting cost pressures, potentially disrupting production timelines. Ross Mayfield, Baird analyst, notes, “If the administration reverts to aggressive tariffs, markets will react in kind.”

For Consumers: Persistent tariffs could reignite inflation, particularly for apparel, electronics, and automobiles. While wage growth remains steady, weaker job creation may dampen consumer confidence ahead of the summer spending season.

For Policymakers: The Fed faces mounting pressure to cut rates, with traders pricing in a 90% chance of a September reduction. However, sticky inflation metrics from the services sector complicate the timeline. The White House must balance trade hawkishness with market stability, as further tariff escalations risk derailing fragile economic momentum.

What We Think

Markets are displaying remarkable resilience despite flashing warning signs. The Nasdaq’s climb suggests investors still see tech as a safe bet amid volatility, but this sectoral reliance could backfire if trade disruptions intensify.

The ADP report’s stark miss underscores how tariff uncertainty is freezing hiring decisions—a trend likely to persist until trade policies stabilize. While the Fed’s potential rate cuts may provide relief, they risk fueling inflation if implemented prematurely.

Europe’s contrasting performance—strong equities amid weak data—highlights the uneven global impact of U.S. trade policies. Germany’s tax cuts offer a temporary boost but fail to address structural challenges posed by declining industrial demand.

Ultimately, the market’s muted reaction to dismal data reflects entrenched optimism that Trump will avoid worst-case tariff scenarios. Yet, as Mayfield quips, the “TACO (Trump Always Chickens Out) trade” hinges on precarious assumptions. Friday’s jobs report could either validate this confidence or expose its fragility.