Can Wall Street withstand the new US tariff challenges?

US stocks end volatile week amid tariff announcements

United States (US) stocks ended a volatile week on a negative note after the White House dismissed rumours that the announcement regarding tariffs could be postponed from 1 February to 1 March.

Tariff impact deepens sell-off

The sell-off is expected to deepen following President Donald Trump's announcement on Sunday of a 25% tariff on imports from Mexico and Canada, including a 10% tariff on Canadian energy, and an additional 10% tariff on China.

Trump's announcement was more hawkish than expected. The 25% tariff rate against Canada and Mexico takes effect this Tuesday, contradicting earlier reports of a one-month implementation period. It also included the threat of further tariffs if countries retaliate, and a 10% tariff against China, which the market had expected to be part of a later stage. Additionally, Trump indicated that tariffs on Europe are imminent.

Global responses to US tariffs

Despite Trump's warning that the US would double tariffs if Canada and Mexico retaliated, both countries have since revealed plans to impose counter-tariffs on US goods.

Canada has confirmed it will implement 25% counter-tariffs on C$155 billion worth of American products starting Tuesday. Meanwhile, the Mexican Economic Minister, Marcelo Ebrard, has been instructed to activate 'Plan B,' which includes both counter-tariff and non-tariff measures against the US.

China has also vowed to retaliate but has not yet announced new tariffs. Instead, it plans to file a complaint against the US at the World Trade Organization (WTO), condemning the tariffs as a serious violation of international trade rules.

Market outlook amid trade tensions

The overall impact of this weekend's tariff announcements, especially if a swift resolution cannot be reached, may lead to a contraction in global trade and higher inflation. This could create strong headwinds for equities while benefiting the US dollar and gold.

Nasdaq 100 technical analysis

The Nasdaq 100's rejection from its 22,133 record high leaves in place a possible double top formation around 22,000.

The expectation is for the Nasdaq 100 to extend last week’s falls to test and break the mid-January 20,538 low before probing a band of critical support in the 9800 - 9500 area, coming from the 200-day moving average (MA) and uptrend support from the December 2022 low of 10,440.

A sustained break of the 9800 - 9500 support zone, would warn that a deeper decline is underway towards the September low of 18,806.

To negate the downside risks, the Nasdaq 100 would need a sustained break above resistance at 22,000 - 22,200 to suggest the current pullback is complete and the uptrend has resumed.

Nasdaq 100 daily chart

S&P 500 technical analysis

In late January, the S&P 500 made a fresh record high of 6128, notable because the Nasdaq 100 and the Dow Jones failed to do so, leaving signs of bearish divergence among the three key US indices.

Building on the signs of divergence and the news outlined above, we expect the S&P 500 to break last week's 5962 low before probing a band of critical support in the 5800 - 5773 range, coming from the mid-January low and uptrend support from the October 2023 low of 4103.

A sustained break of the 5800 - 5770 support zone, would warn that a deeper decline is underway towards the 200-day MA at 5629. A sustained break below the 5630 area could cause significant technical damage to the uptrend, opening the way for a deeper pullback towards the September low of 5402, with scope towards the August low of 5119.

To negate the downside risks, the S&P 500 would need a sustained break above resistance at approximately 6130.

S&P 500 daily chart

• _{Source: Tradingview. The figures stated are as of 3 February 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}