The Dow rallied on Tuesday as investors welcomed President Trump’s calmer stance on tariffs on day one. Excellent earnings so far are also helping.
The blue-chip index was up 455 points, or 1%, shortly after noon. The S&P 500 and the Nasdaq were up 0.6% and 0.3%, respectively.
Trump signed a slew of executive orders on Inauguration Day, but he stopped short of implementing harsher tariffs policies, which he talked up during the presidential campaign. He took “a more benign tone on tariffs,” said Goldman’s economist Jan Hatzius.
Hatzius also sees only a 25% chance that Trump will impose a universal tariff on all goods coming from all the countries in the near term.
The problem with tariffs is that they are widely understood to be inflationary as the target countries retaliate by raising prices on their goods, an act that gets ultimately passed on to the American consumer. That’s not good for stocks.
But Trump is likely using the threat of tariffs as a political negotiation tactic. The president said he’s thinking about imposing 25% duties on imports from Canada and Mexico on Feb. 1 because of the fentanyl and immigrant crossings. Trump never implemented a 25% tariff on goods from Mexico in 2019.
The political rummages aside, fundamental factors are also helping stocks rally. Analysts expect fourth-quarter S&P 500 earrings per share to grow by 12.1%, and so far there’s been limited downside to that number.