Stock markets accelerated their plunge after closing down for several weeks. Investors are pricing in the risks of a recession. Consumers are not ignoring President Trump’s range of tariff threats. After the elections last November, they accumulated goods to avoid those extra costs. Last month, they bought more items. This might push the inflation rate in the CPI report tomorrow morning higher.
On Monday, HSBC downgraded U.S. stocks based on the uncertainty around tariffs. The U.S. President threatened to impose 25% tariffs in February only to back down. Earlier this month, he cited fentanyl coming from Canada and Mexico to proceed with the duty. The President delayed the tariff on the three big automakers by late last week.
Unfortunately, firms like Ford (F) and General Motors (GM) invested billions in Canada and Mexico to lower their manufacturing costs. They cannot relocate the plants back to the U.S.; instead, they would need to pay the tariffs. Once the trade partners retaliate, those firms will need to pass the higher costs to consumers. Expect automobile and auto parts sales to fall. Customers are not willing to pay more.
A recession in the auto market is increasingly likely.
Your Takeaway
The recession will hurt the car market the most. The food sectors may outperform markets. Pepsi (PEP) and Coca-Cola (KO) shares traded nearly flat on Monday.
