Many stock strategists believe the decision has already been priced into the stock market. However, if tariffs are struck down, we expect weakness in the U.S. Dollar and further steepening in the Treasury yield curve, as short-term rates fall in response. Without the tariffs, however, the case for the Federal Reserve to begin cutting interest rates could be strengthened.
Conversely, if the tariffs remain intact, risk assets could benefit. Analysts see the tariffs as an important source of revenue for a country facing a huge deficit. Furthermore, the inflationary impact from the tariffs has not hurt economic expansion.
Conclusion: Bracing for Volatility
In conclusion, the labor market report and the tariff ruling represent the year’s first major inflection point for financial markets. Elevated equity valuations, uncertain government policies and shifting expectations around Federal Reserve actions heighten the stakes.
Traders should brace for a day aware that either event could trigger large swings across equities, bonds and currencies. The retail sector will also be exposed to the possibility of elevated risks. The start of the new year has been relatively stable, but Friday’s catalysts may determine whether the stability continues or marks the end of the calm start of the year.
More Information in our Economic Calendar.