Friday's Market Minute: When An Unstoppable Rate Cut Meets An Immovable Tariff

The past two days have delivered two huge bombshells for markets. On Wednesday, the Fed announced its decision to cut the interest rate by 25 basis points, which most investors expected. But yesterday, another more unexpected market driver entered the field when President Trump tweeted about introducing a new 10% tariff hike on Chinese goods entering the U.S. The result was yesterday’s pullback in U.S. stock prices, with the four major indices plummeting as volatility skyrocketed.

The question is: what’s next? Though there’s been a string of record highs for U.S. equities in the past month, it’s unclear whether this trend will continue after yesterday’s sell off, especially with the volatility index reaching its highest level in more than two months. Much of the market activity in the coming weeks will be dictated by China’s response to Trump’s decree.

The President’s proposed tariffs would not go into effect until September 1, nearly a month from now, but in the meantime investors will be watching to see whether China escalates trade tensions or attempts to assuage them. In the case of the Fed, it is possible to predict policy changes with relative accuracy. But with the ongoing trade war, markets can be affected by unforeseen forces (like tweets), which could muddle the outlook of not just U.S. markets, but global markets, too. Keep an eye on the actions of Trump and Xi Jinping in the coming weeks.

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