The stock market was whipsawed today by geopolitical developments. Stocks fell this morning when President Donald Trump announced a 50% tariff on Canadian steel and aluminum. They then recovered after Ukraine agreed to a US-proposed ceasefire deal (pending Russia's acceptance). Incremental progress on a tariff-avoiding deal between the US and Canada late in the day provided an additional boost. But stock prices still closed down a bit for the day.
Investors are worrying about the adverse macroeconomic consequences of all this geopolitical turmoil. The uncertainty associated with rapid-fire tariff announcements from the White House could weigh on the economy. The NFIB survey of small business owners includes an uncertainty index, which rose to a new record high of 110 during October (chart). After the November 5 elections, it fell down to 86 in December and then rebounded to 104 in February.
Uncertainty typically increases in advance of a presidential election then decreases once the new president's policy goals are clearer. If uncertainty lingers, then consumers may pull back on spending and companies might be reluctant to invest, ultimately hurting the jobs market. The stock market is increasingly discounting this scenario, pushing the Nasdaq into correction territory with the S&P 500 heading in the same direction (chart).
