After the market had declined for a couple days over fears of a hawkish Fed, many wondered if stocks would rally on Thursday after investors heard Powell give a neutral testimony. Stocks were up in the morning, but then they cratered hard after news of President Trump announcing steel and aluminum tariffs. The S&P 500 fell 1.33% and the VIX increased 13.2% to 22.47. The prognosticators have been worrying about Trump going through with a trade war ever since he campaigned on protectionism. After he made deals with China which opened up their markets, it looked like Trump wasn’t going to hurt the consumer with high tariffs. I’ve been a proponent of ignoring the campaign rhetoric as I don’t expect a trade war.

The tariffs on aluminum and steel caused the market to fall even though this is probably a small change which could cause a scuffle rather than an outright trade war. It’s like if someone considered investing 1% of their money in Apple stock. Then the investor gets emotional about a decline in stocks even though there was only a consideration of a small investment. To use a colloquial term, the market went from 0 to 100 really quick. The market looked at a potential small tariff and immediately feared the worst: a trade war. It’s not as if this potential 25% tariff on steel and 10% tariff on aluminum are the only policies in place that a country has to protect itself. America’s weak dollar policy is a far bigger deal to the global trade battle than tariffs on steel and aluminum.

Aluminum & Steel Stocks Rally While End Users Fall

I think the positive reaction in aluminum and steel stocks and the negative reaction in the end users of those commodities are appropriate, but the overall market decline is an overreaction. U.S. Steel stock was up 5.75%. AK Steel was up 9.5%. Caterpillar stock was down 2.84% and GM stock was down 3.99%. The price of these end materials will increase and the companies who produce them will be investing in their production which will create jobs in areas like Kentucky. If this plan goes through, it’s a small negative for the consumer and a positive for workers in the aluminum and steel industries.