By Sinéad Carew and Johann M Cherian
(Reuters) – Wall Street's main indexes closed higher on Tuesday, with the Dow hitting its worst in more than a month, as investors assessed Donald Trump's first act as US president and breathed a sigh of relief that he did not start his second term in a blanket. inflation.
Trump did not lay out any concrete plans for universal tariffs and additional tariffs on close trading partners as he had previously promised, but said he was considering imposing duties on Canadian and Mexican goods as early as February 1.
While investors remain cautious about tariffs and the possibility of a global trade war driving higher inflation, brokerage Goldman Sachs has lowered its forecast for global inflation this year to 25% from about 40% seen in December.
“There was definite relief and surprise that taxes weren't called in the first round of regulatory actions that happened yesterday,” said Carol Schleif, chief market strategist at BMO Private Wealth. “Markets are jumping to the conclusion, perhaps rightly so, that the administration is going to take a more aggressive approach.”
Investors hope that the new administration will use the threat of tariffs as a negotiating tactic and take “a scalpel and not a sledgehammer to taxes,” said Schleif.
Last week, the S&P 500 and Dow registered their biggest weekly percentage gains since early November, helped by strong bank earnings and signs that inflation was cooling.
Schleif also noted a healthy extension of the market rally on Tuesday, with the index focused on domestic small caps beating the large cap indexes and hitting the highest level since Dec. 18.
According to preliminary data, the S & P 500 gained 52.84 points, or 0.88%, to end at 6,049.50 points, while the Nasdaq Composite gained 126.58 points, or 0.64%, to 19,756.78. The Dow Jones Industrial Average rose 540.68 points, or 1.24%, to 44,028.51.
Among S&P 500 sectors, stocks were boosted by 3M, which rallied after reporting fourth-quarter earnings.
The utilities sector was lifted by nuclear power stocks after Trump issued orders aimed at increasing energy production. Its biggest beneficiaries include Vistra Corp, NRG Energy (NYSE: ) and Star power (NASDAQ:).
Heavyweight Apple (NASDAQ: ) was the biggest drag on the S&P 500 after brokerage Jefferies cut its rating to “underperform.”
Shares of automakers, which are particularly sensitive to tariffs because of their large supply chains, rose. Gains at Ford (NYSE: ) lagged behind those of General Motors (NYSE: ), which had quality improvements from Deutsche Bank (ETR:).
During the first year of the former Trump administration, the S&P 500 rose 19.4%. The benchmark index rose about 68% during his four-year tenure, but saw volatility, fueled by Trump's trade war with China.
However, inflation is still above the Federal Reserve's 2% target, raising concerns that the new administration's policies could slow the central bank's pace of easing.
Economists see the Fed leaving borrowing costs unchanged when it meets next week and traders see the first interest rate cut coming in June, according to CME Group's (NASDAQ: ) FedWatch tool.
Among other individual stocks, Walgreens fell after the Justice Department accused it of filling illegal prescriptions for pain relievers and other drugs.
Current (NASDAQ:) has come together after securing $590 million from the US government to accelerate the development of a bird flu vaccine.