After Tariff News, Investors Digest Policy Plans
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, April 3rd. Wall Street will spend the day digesting Wednesday's tariff announcement from President Trump after stocks rallied into the news yesterday.

In a White House ceremony, Trump promised his new policies would, quote, make America wealthy again, end quote, and accused foreign leaders of tearing apart the American dream. After weeks of uncertainty about tariffs that rattled markets, trade partners, and U.S. companies, the president announced sweeping tariffs that go beyond what most analysts anticipated.

Trump instituted an across-the-board 10% tariff on all imports and then additional reciprocal tariffs on imports from dozens of countries that in some cases will approach 50%. However, Canada and Mexico are exempt from the newly announced tariffs as they are already subject to other levies, the White House told Barron's. As of press time, additional details were still being determined.

Trump said he'd sign an order declaring reciprocal tariffs on countries with tariffs on U.S. imports and that proceeds would be used to reduce taxes and pay down debt. He reconfirmed a 25% tariff on all foreign-made cars and named various countries and industries he said are treating American industry and farmers unfairly. The auto tariffs took effect at midnight today.

The announcement launches an unprecedented economic experiment, one which most economists believe will result in higher prices, slower growth and rising inflation, but which the White House believes will fundamentally reshape the U.S. economy with ultimately positive results, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab, speaking shortly after Trump announced the policy yesterday.

Time will tell which view turns out to be correct. Before the White House announcement, there was a sense that Wednesday might represent peak tariff, meaning peak risk from tariffs, said Jeffrey Kleintop, chief global investment strategist at Schwab.

Peak tariff is the idea that the tariff moves following today would be directionally downwards, including partial relief for Canada and Mexico, a China deal at a Trump-Xi summit this summer, and bilateral deals along the way, Kleintop wrote in a note Wednesday morning.

Trump may be putting up onerous tariffs and allow trading partners to negotiate their way down by offering concessions. And Treasury Secretary Scott Besant has more or less said that that will be the case this time around, too, Kleintop added. If Besant is correct and today represents the worst case for America's trading partners, one could argue that it might set up something of a short-term positive asymmetry.

Bessant told Senate Republicans yesterday that tariff rates announced Wednesday would be the top rates and go down from there, not up, CNBC reported. In non-trade news, investors got a fresh look at the jobs picture Wednesday with ADP's private sector report for March. The data came in above expectations at 155,000 and includes gains in manufacturing, but that doesn't necessarily mean much for Friday's government numbers.

Analysts see job gains of 130,000 down from 151,000 in February, with unemployment staying at 4.1%. The 10-year Treasury yield, which sank to near its 2025 lows earlier Wednesday, pushed upward following the ADP news and finished at 4.2%, still down sharply from a week ago.

Before that, today's weekly initial jobless claims data will get a close look from investors worried about possible job market cracks, though claims have stayed relatively low over the last few months. No single week, of course, would indicate much, but a trend toward claims rising into the $240,000 or above range might raise eyebrows. Another report to watch today is the ISM Services PMI for March due at 10 a.m. ET,

Analysts expect a headline of 53.2 down from 53.5 in February, but still above the 50 level needed to indicate expansion. The services sector is far bigger than manufacturing and has generally expanded in recent months, even as manufacturing mostly lingered in contraction below 50.

Major indexes seemed to go along with all those ideas yesterday, clawing back from sharp early losses to post-moderate gains by the close, with all major indexes in the green. Industries like automobiles expected to be hurt most by tariffs joined in the rally, with both Ford and General Motors climbing more than 1% and Toyota up about the same.

Tesla also participated in the auto industry rally, rising nearly 5% and turning around moderate early losses, despite first quarter deliveries of 336,000 coming in well below the 380,000 analysts had expected. The news was unpleasant, but there was some sense that it had been built into the price of the stock already, which is down 35% since Trump took office.

A headline at midday by Politico that CEO Elon Musk might soon leave his government role also appeared to help shares, but the White House denied that report. As of late Wednesday, there was only a 10% chance of rates being lowered at the May Federal Open Market Committee meeting, according to the CME FedWatch tool. That rises to 65% for June, but both May and June chances have slipped this week amid concerns over lingering inflation.

Fed Chairman Jerome Powell is scheduled to deliver remarks on Friday.

The S&P 500 index added 37.90 points or 0.67% to 5,670.97. The Dow Jones Industrial Average rose 235.36 points or 0.56% to 42,225.32. And the Nasdaq Composite climbed 151.16 points or 0.87% to 17,601.05.

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