Markets claw back after sharp losses on Mexican tariffs are paused

Dow dropped 122 (well off early losses), decliners over advancers 2-1 & NAZ fell 235.  The MLP index gained 4 to the 322s & the REIT index slid back 1 to the 401s.  Junk bond funds remained out of favor & Treasuries saw limited buying, reducing yields slightly.  Oil crawled up to the 73s & gold advanced 23 to 2858 (more on both below).

Dow Jones Industrials

Federal Reserve Bank of Atlanta Pres Raphael Bostic said he wants to wait “a while” before cutting interest rates again following last year's reductions amid uncertainty over where the US economy is headed in 2025.  “I want to see what the 100 basis points of reduction that we did at the end of last year translates to in terms of the economy,” Bostic said.  “Depending on what the data are, it might mean that we are waiting for a while.”  The comments were Bostic's first public remarks since Fed officials agreed to leave their benchmark interest rate steady last week in a target at 4.25% - 4.50%.  The pause in adjustments followed 3 reductions late last year that lowered the benchmark by a full percentage point.  Fed Chair Jerome Powell said officials are in no hurry to lower interest rates, pointing to strong economic data & uncertainty over how the US economy & inflation will respond to Pres Trump's policies on tariffs, immigration, taxation & regulation.  Trump announced over the weekend that he would invoke emergency powers to impose tariffs on Mexico, Canada & China, though today he delayed implementation of the levies against Mexico.  “I had uncertainty on December 31. The amount of uncertainty that we have today is greater than that,” Bostic said during the conversation with his predecessor, former Atlanta Fed Pres Dennis Lockhart.  Powell said last week officials want to see more progress on inflation & would be looking for “serial readings” showing price pressures moving in the right direction.  Subsequent data showed the Fed's preferred measure of underlying inflation remained muted in Dec & real incomes were soft, according to a gov report released Fri.

Fed’s Bostic Says It Might Be a While Before Next Rate Cut

Tesla's (TSLA) electric-vehicle registrations in California fell about 12% last year, according to industry data, indicating mounting challenges for the automaker in the key US market.  While high interest rates, tough competition & the introduction of a restyled Model 3 sedan hurt the EV maker's sales in California, the loss of business was likely exacerbated by CEO Elon Musk's involvement in the US election.  "Things aren't looking so golden for Tesla in the Golden State. Tesla's dominance in the electric-vehicle market continues to falter as the brand reported its fifth consecutive quarterly registration decline," California New Car Dealers Association said in a report on Jan 31.  Still, the Model Y crossover continued to be the top-selling vehicle in the state, with about 129K units sold last year.  The Model 3 sedan was a distant second, with around 53K cars delivered.  Sales of the Model 3 fell about 36% from a year earlier, according to data sourced by the industry body, which was first reported earlier in the day.  Its global deliveries fell for the first time last year, pressured by high borrowing costs & competition from Chinese & European automakers.  A report said in Nov that Trump's transition team was planning to kill the $7500 consumer tax credit for EV purchases as part of broader tax-reform legislation.  If the Trump administration scraps the federal tax credit for EV purchases, California may introduce state tax credits under a new proposal & TSLA's EV likely would not qualify for the incentives, Governor Gavin Newsom's office had then said.  The stock fell 20.92 (5%)

Tesla's California car registrations down 12% in 2024

Apple (AAPL), a Dow & NAZ stock, shares fell after Pres Trump announced 10% tariffs on China, where the company assembles the majority of its products.  The decline was steeper than all of the tech megacaps shows how vulnerable the iPhone manufacturer could be to increased import costs.  While AAPL faced tariffs during the first Trump administration, the company was largely able to avoid fees by securing waivers for its specific products.  It also expanded its supply chain to do some assembly in countries like Vietnam, Malaysia & India.  But AAPL remains reliant on Chinese production.  Last week, AAPL reported 4% revenue growth in the Dec qtr to $124B.  However, the company guided investors to expect merely “low to mid single digits” growth in the current qtr, & said sales in China, Taiwan & Hong Kong declined 11% in the latest period.  The ultimate effect of the tariffs on its profit may depend on how much US demand the company can fill from production locations outside of China.  If AAPL can source 80% of US-bound devices from outside of China & doesn't raise prices, it could hurt annual EPS by 5¢, less than 1%, according to a note from Bank of America Securities analyst Wamsi Mohan.  If ½ of US AAPL devices are from China, it would hurt full-year EPS by 12¢, Mohan estimates.  For the fiscal year ending in Sep, analysts expect AAPL to report EPS of $7.34.  The stock fell 7.99 (3%).

Apple shares fall on concern Trump tariffs on China will hit profit

Gold futures settled moderately higher as prices recovered from early lows, with investors picking up the safe-haven commodity amid fears of a prolonged trade war after Pres Trump imposed tariffs on Canada, Mexico & China & warned that the EU & the UK could be the next targets for the levy.  However, the US has decided to postpone implementation of tariffs on Mexico by a month after Trump reached an agreement with Mexican Pres Claudia Sheinbaum as per which Mexico will immediately reinforce its northern border with 10K members of its National Guard to prevent drug trafficking from Mexico to the US, particularly fentanyl.  Canada & Mexico ordered retaliatory tariffs on American goods, while China vowed countermeasures.  The EU also warned of firm retaliation if targeted.  Investors fear that a trade war could hit the earnings of major companies & dent global growth.  The tariffs could also lead to renewed inflation fears, leading the Federal Reserve to keep interest rates on hold for longer.  The $'s strength weighed a bit on gold prices & limited the upside. The dollar index climbed to 109.88 in the Asian session, but dropped to 108.57 before recovering to 108.95, still up fairly above the flat line, gaining 0.54%.  Gold futures for Feb closed up $21 (0.8%) at $2833 an ounce for a fresh record high.

Gold Futures Settle Moderately Higher On Safe-haven Buying

The US crude benchmark outpaced gains in other oil markets after Pres Trump announced tariffs that threaten flows from America''s 2 biggest foreign suppliers.  West Texas Intermediate crude rose to $2.65 a barrel today, compared with $1.67 for Brent, narrowing the spread between the 2 grades to the smallest since Sep 2023.  The narrowing gap underscores risks to US supply, both from Canadian flows into the Oklahoma storage hub where US crude futures are priced, & from Mexican shipments into the Gulf Coast.

U.S. Oil Prices Outpace Global Gains as Tariffs Threaten Supply

Stocks mostly fell in reaction to Pres Trump's announcement of tariffs on China, Mexico & Canada.  But the major averages pared heavy losses after Trump said the US would delay tariffs on Mexican imports by a month.  Consumer discretionary  stocks, which includes automakers, were hit over fears of tariff impacts.