Wall Street experienced a significant surge on Tuesday, with the S&P 500 and Dow Jones Industrial Average reaching their highest levels in over a month. This positive movement was driven by investor optimism following President Donald Trump’s initial actions in his second term, particularly his decision to avoid implementing widespread tariff increases.
While Trump indicated the possibility of imposing duties on Canadian and Mexican goods as early as February 1st, he refrained from announcing concrete plans for universal tariffs or surcharges on key trading partners, contrary to previous pronouncements. This tempered earlier concerns about a potential global trade war and inflationary pressures stemming from aggressive tariff policies. Goldman Sachs, reflecting this shift in sentiment, lowered its projection for the likelihood of universal tariffs in 2024 to 25%, down from approximately 40% in December.
According to Carol Schleif, chief market strategist at BMO Private Wealth, there was a palpable sense of relief and surprise in the market that tariffs were not included in the first wave of executive orders. This suggests that the administration may adopt a more nuanced approach to trade policy. Investors are hopeful that the threat of tariffs will primarily be used as a negotiating tool, favoring a more targeted strategy over sweeping measures.
Despite the positive momentum, Schleif cautioned that market volatility could still arise if Trump introduces tentative tariff proposals. The market’s extended period without a significant correction (10% or more) increases its susceptibility to sudden shifts in sentiment.
The Dow Jones Industrial Average surged by 537.98 points (1.24%) to close at 44,025.81, while the S&P 500 gained 52.58 points (0.88%) to reach 6,049.24. The Nasdaq Composite also saw an increase, rising by 126.58 points (0.64%) to close at 19,756.78, nearing its highest point since January 6th. The Russell 2000 index, a benchmark for small-cap stocks, outperformed its larger-cap counterparts with a notable 1.85% gain, signaling broad market strength.
Sector Performance and Key Movers
Across the S&P 500’s 11 major sectors, only the energy sector experienced a decline, falling by 0.64%. Six sectors registered gains of at least 1%, with industrials leading the way with a 2.03% surge. This sector was bolstered by strong performances from companies like 3M, which rallied 4.2% following a positive fourth-quarter earnings report.
The utilities sector benefited from gains in nuclear power stocks after Trump issued a series of executive orders aimed at promoting energy production. Vistra Corp, NRG Energy, and Constellation Energy were among the sector’s top performers.
Offsetting these gains, Apple, a heavyweight in the S&P 500, experienced a significant decline of 3.2% following a downgrade to “underperform” by Jefferies.
Conclusion: Cautious Optimism Prevails
The market’s positive response to President Trump’s initial actions indicates a cautious optimism among investors. The absence of immediate tariff increases has alleviated concerns about a potential trade war, allowing markets to breathe. However, the long-term trajectory remains dependent on the specifics of future trade policies. While a more nuanced approach is anticipated, the possibility of targeted tariffs and the market’s vulnerability to sudden shifts in sentiment warrant continued vigilance.
