Stock Market Surges: Dow, S&P 500, Nasdaq rally as President Donald Trump’s tariff shock boosts steel giants—But will it trigger inflation & delay Fed cuts?

US stock markets looked to recover on Monday after sharp losses last week, with steelmakers leading the way following President Donald Trump’s announcement of new tariffs on steel and aluminum imports.

US stocks climb after tariff announcement

Ahead of the market opening, futures showed positive momentum:

• Dow Jones Industrial Average (YM=F) gained 0.3% after suffering its worst loss in nearly four weeks on Friday.
• S&P 500 (ES=F) climbed 0.5%.
• Nasdaq 100 (NQ=F) rose 0.7%, signaling strong recovery for tech stocks.

Trump confirmed on Sunday that he would impose a 25% tariff on steel and additional tariffs on aluminum for all countries, with an official announcement expected Monday. This move is expected to benefit US steel manufacturers, driving stock gains for companies such as:

• Cleveland-Cliffs (CLF) and Nucor (NUE), both rising over 8% in pre-market trading.
• US Steel (X), up 6%, despite ongoing concerns over a proposed Nippon Steel buyout.
• Aluminum producer Alcoa (AA) also saw gains.

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Impact on trade and market response

The tariff decision signals another shift in Trump's trade policies, heightening risks of a trade war. Major US trading partners, Canada and Mexico, are already facing potential tariff hikes, which had been paused but now remain uncertain. Trump also mentioned reciprocal tariffs to be announced Tuesday or Wednesday, directly impacting trading partners with duties mirroring those imposed on US goods.

Despite these risks, Monday’s pre-market gains suggest investors are adjusting to Trump’s trade maneuvers, viewing them more as negotiation tactics rather than immediate threats to global trade stability. However, concerns remain about inflation, which could delay Federal Reserve interest rate cuts.

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Key economic indicators to watch

Investors are closely watching upcoming data that could shape the Fed’s monetary policy:

January Consumer Price Index (CPI) – Set for release on Wednesday, this will provide insight into inflation trends.

Retail sales data – Expected this week, crucial for evaluating consumer spending patterns.

Corporate earnings – Reports from 78 S&P 500 companies this week, including McDonald's (MCD), Coca-Cola (KO), Super Micro Computer (SMCI), and Airbnb (ABNB).

US labor market shows strength

The latest January jobs report, released Friday, showed continued resilience in the labor market:

• Unemployment rate fell to 4%, an eight-month low.
• Wages increased 0.5% month-over-month, exceeding the 0.3% rise in December.
• Payroll revisions showed an additional 100,000 jobs added in November and December, signaling stronger job growth than previously estimated.

The Federal Reserve remains cautious on rate cuts, emphasizing the need for further inflation control. The Fed’s December Summary of Economic Projections (SEP) projected two rate cuts in 2025, but markets now expect fewer cuts, with only a 52% chance of one rate cut this year based on the CME FedWatch tool.

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Fed Chair Jerome Powell emphasized in January that rate cuts would depend on either real progress on inflation or signs of labor market weakness. Chicago Fed President Austan Goolsbee noted Friday that the labor market is in a better position than mid-2024, reducing urgency for rate adjustments.

FAQs:

Why did US stock markets rise today?
Trump’s new steel and aluminum tariffs boosted steel stocks, lifting markets.

Which companies gained the most from Trump’s tariff decision?
Cleveland-Cliffs, Nucor, US Steel, and Alcoa saw strong pre-market gains.