Traders work on the floor of the New York Stock Exchange during morning trading on February 03, 2025 in New York City.
Michael M. Santiago | Getty Images
U.S. stocks rapidly made back ground after the U.S. and Mexico said tariffs against the trading partner would be paused for one month.
Stocks initially dropped Monday after President Donald Trump hit several countries with tariffs over the weekend, raising fears that a full-blown trade war would disrupt global supply chains, reignite inflation and slow the economy.
But losses were rapidly dissolving following the announced pause in the trade battle with Mexico.
The Dow Jones Industrial Average was trading just above the flatline, reversing earlier losses of 665 points. The S&P 500 shed 0.4% after being down as much as 1.93% earlier. The Nasdaq Composite slid 7%. Meanwhile, the iShares MSCI Mexico ETF (EWW) rebounded to rise 2%.
.DJI, 1-day
Trump on Saturday slapped a 25% tariff on goods from Mexico and Canada; energy imports from Canada will have a 10% tariff. Trump also placed a 10% levy on imports from China. Trump also signaled over the weekend that tariffs on the European Union would be imposed next.
But a post from Mexico’s President Claudia Sheinbuam following a conversation with Trump sparked an intraday comeback. “We had a good conversation with President Trump with great respect for our relationship and sovereignty; we reached a series of agreements,” Sheinbaum wrote in a post, according to a translation from Spanish.
Trump shortly later confirmed the temporary deal on Truth Social. “It was a very friendly conversation wherein she agreed to immediately supply 10,000 Mexican Soldiers on the Border separating Mexico and the United States,” wrote Trump, adding that negotiations for a more permanent deal would continue for the month.
The pausing of the tariffs on Mexico reinforced the bullish view of some investors that tariffs for all countries could be Trump’s negotiating tool and that investors shouldn’t overreact initially.
“Call us deluded, but we still think that permanent tariffs on the U.S.’s allies (Canada, Mexico) will not be a thing,” said Thierry Wizman, global FX and rates strategist at Macquarie. “That’s because concessions are an ‘easier’ way to deal with Trump’s ‘problems’ (from a cost-benefit and game-theoretic perspective), and Trump likes to make ‘deals’. Political and market pressure will also weigh on the parties to make concessions, as in 2018.”
U.S. automakers with big North American supply chains like Ford and General Motors clawed back earlier losses. Shares of the companies were respectively last down 1% and 3%. Constellation Brands, a big importer of sprits from Mexico, was well off the day’s lows and down just 2%.
The emerging trade war comes as investors are dealing with the biggest stretch of fourth-quarter earnings reports and a key economic reading on the labor market this week. More than 120 companies in the S&P 500 are set to report their results, including tech names Alphabet, Amazon and Palantir, as well as consumer giants, including Walt Disney and Mondelez. The January nonfarm payrolls report will be out Friday with economists polled by Dow Jones expecting that 175,000 jobs were added last month.
