Stocks were pointing higher ahead of the first trading day of the week. But traders are bracing for more volatility on Donald Trump’s first full day in office as president in his second term.
While markets were closed on Monday for the Martin Luther King, Jr. holiday, futures rose most of the day before dropping suddenly when Trump said that 25% tariffs on imported goods from Canada and Mexico could be introduced from Feb. 1. They then recovered and were slightly up in premarket trading Tuesday.
The swing could be the first of many sudden movements over the next four years as Trump surprises markets with policy announcements and details. Tariffs are bad for stocks on balance because they raise barriers to trade and increase the cost of doing business for companies, but Trump’s other promises to slash regulation and lower taxes are expected to be positive for shares.
Trump has already signed a flurry of executive orders, including one delaying the ban on social media platform TikTok and one that revoked rules on regulating artificial intelligence that was put in place by former President Joe Biden.
Markets will also be looking for clues as to how much the Federal Reserve might lower interest rates later in the year. Inflation data released last month were seen as supportive of more cuts after the central bank reduced borrowing costs by a full percentage point at the end of last year.
“While we will be closely monitoring for risks, we do not believe that the tariff measures outlined in our base case would be sufficient to derail U.S. growth,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Nor do we believe that such tariffs would preclude inflation continuing to fall from current levels, enabling the Fed to cut rates” by half a point “later this year.”
Other key events today include earnings from streaming service Netflix, United Airlines, pharmaceutical firm Johnson & Johnson, and consumer goods maker Procter & Gamble. More results are due later in the week, with a sprinkling of economic data from purchasing managers indexes and existing home sales out on Friday.
Futures for the Dow added 190 points, or 0.4%. Contracts tied to the S&P 500 and Nasdaq 100 were up 0.5%.
Bond yields were retreating early Tuesday. The yield on the 10-year Treasury was at 4.575%, down from above 4.6% earlier in the day. The yield on the 2-year Treasury note was 4.259%.