It's a Rocky Road Ahead for Investors as Trump Tariff Talk Heats Up on Wall Street

Companies in the S&P 500 are increasingly focused on the tariff policies of President Donald Trump, a factor that could heighten volatility in the U.S. stock market, according to a recent research note from Citigroup.

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"Of all Trump policy discussions, the role tariffs play in shaping the equity market outlook stands out," wrote Scott Chronert, an analyst at Citi Research, in a note dated January 23. Chronert highlighted a "surge" in companies mentioning tariffs during their quarterly earnings calls, as tracked using a three-month moving average.

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On Friday, U.S. stocks closed lower, with the S&P 500 retreating 0.3% from its record high of 6,118.71 set the previous day. Despite the dip, the index still logged its second consecutive weekly gain after Trump returned to the White House earlier in the week.

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"While President Trump avoided broad-based tariff actions during his inauguration week, we anticipate that the issue will remain a source of volatility in the months ahead," Chronert said. He noted that timelines for tariff policies and potential tax reform appear to have been delayed, which could impact the market’s outlook.

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At the World Economic Forum in Davos, President Trump reiterated his commitment to using tariffs to incentivize the return of manufacturing to the U.S., according to Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

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In a note released Friday, Marcelli emphasized that tariffs are a central concern for many investors because they represent an area where the president has significant unilateral authority. This power allows Trump to disrupt market expectations of sustained economic growth and declining inflation.

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The possibility of aggressive tariffs has sparked investor anxiety due to their potential to fuel inflation and stifle economic growth. These concerns are particularly relevant as the Federal Reserve prepares for its upcoming two-day meeting on monetary policy.

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The Fed began cutting interest rates last September after U.S. inflation eased significantly from its 2022 peak, but any tariff-induced inflationary pressures could complicate its efforts.

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Major U.S. stock indexes ended lower on Friday, reflecting the market’s nervousness about the potential impact of tariffs. The S&P 500 declined by 0.3%, the Dow Jones Industrial Average also dropped 0.3%, and the Nasdaq Composite fell 0.5%. Nonetheless, the S&P 500 posted a 1.7% weekly gain, marking its second straight week of growth.

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The heightened focus on tariffs underscores their potential to influence key economic indicators and market sentiment. Investors remain cautious as the administration’s trade policies could affect everything from corporate earnings to inflation trends. For now, the market awaits further clarity on how these policies will evolve and their implications for the broader economy.

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