Stocks Down Yesterday, But Well Off Their Lows After Tariffs On Mexico And Canada Are Paused
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Stocks closed lower yesterday, but well off their lows of the day.
The markets plunged yesterday morning as worries of a trade war hammered stocks. On Friday, President Trump said he would impose 25% tariffs on Canada (although 10% on Canadian energy), 25% on Mexico, and 10% additional tariffs on China.
But shortly after the open, it was reported that President Trump and Mexico's President Claudia Sheinbaum had agreed to conditions in which the U.S. would pause implementing those tariffs for 30 days. The main part of the agreement was Mexico placing 10,000 troops on the U.S./Mexico border to help stop the influx of drugs and illegal immigration. Assuming successful, those tariffs could be paused indefinitely. If not, they could go on 30 days from now.
Stocks immediately rebounded on the news.
However, the U.S. and Canada talked in the morning, but a deal was not forthcoming. In lieu of a deal, Canada said it would reciprocate with 25% tariffs on U.S. imports. But after the close, it was announced that Canada also got a 30-day reprieve after Canadian Prime Minister Justin Trudeau spoke with President Trump, and said his country was implementing a $1.3 billion border plan, including 10,000 personnel to protect the border from drugs and illegal crossing.
China has not detailed how it plans to respond. But they did say they planned to appeal the implementation of the new tariffs to the World Trade Organization, saying they violated WTO rules.
In other news, yesterday's PMI Manufacturing report saw the index rise to 51.2 vs. last month's 49.4 and views for 50.1.
The ISM Manufacturing Index rose to 50.9 vs. last month's 49.3 and estimates for 49.5.
And Construction Spending increased by 0.5% m/m vs. last month's 0.2% and the consensus for 0.3%. The y/y rate was up 4.3% vs. last month's 3.0% pace.
Today we'll get Factory Orders and the Job Openings and Labor Turnover Survey (JOLTS) report.
But the report everybody is waiting for is Friday's Employment Situation report.
Last month's jobs report came in sharply higher than expected (256K new jobs vs. views for 'just' 157K). That weighed on stocks when it came out. But they quickly turned higher a few days later, setting in motion the rally that we've been seeing for the last 3 weeks.
Since we already know the Fed has put rate cuts on the back burner, likely for a few months, a better-than-expected jobs report would underscore the strength and resilience of the economy. It may not hasten the next cut. But the economy and the market have been doing just fine with the 100 bps cut we've already gotten.
In the meantime, with earning season underway, we'll of course get more earnings.
After the close yesterday, Palantir posted a positive EPS surprise of 27.3%, and a positive sales surprise of 6.70%. That translated to a quarterly EPS growth rate of 75% vs. this time last year, and a sales growth of 36%. Moreover, they upped their 2025 revenue guidance by 7%, putting midpoint sales expectations at $3.745 billion vs. the prior consensus of $3.5B. They were up 1.52% in the regular session before earnings, and soared by more than 20% in after-hours trade.
Today we'll get another 162 companies on deck to report, including Alphabet and Advanced Micro Devices after the close.
With earnings season in full swing, and since stocks typically go up during earnings season, that bodes well for stocks and could overshadow all the tariff talk.
See you tomorrow,

Kevin Matras
Executive Vice President, Zacks Investment Research
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