Will Trump tariff turmoil dim the economy's lights?

Investing.com -- U.S. stocks swung sharply this week as geopolitical developments and trade tensions weighed on investor sentiment, with concerns mounting over the broader economic impact of the latest White House tariff decision.

After Trump announced a 50% tariff on Canadian steel and aluminum markets initially fell on Tuesday trading but pared losses following news that Ukraine had agreed to a U.S.-proposed ceasefire deal, pending Russian acceptance. Late-day optimism over incremental progress on a tariff-avoiding agreement between the U.S. and Canada further lifted stocks, though major indexes still closed slightly lower.

The volatility shows investor fears over the economic fallout from shifting trade policies, according to analysts.

Small business uncertainty, as measured by the NFIB’s uncertainty index, surged to a record high of 110 in October before dropping after the November elections. By February, it had rebounded to 104, reflecting lingering doubts about economic stability.

Historically, uncertainty rises ahead of a presidential election before easing once policy priorities become clearer. However, prolonged uncertainty could weigh on consumer spending and corporate investment, potentially weakening the labor market.

The Nasdaq has already fallen into correction territory, while the S&P 500 is moving in the same direction.

Consumer sentiment is also deteriorating. The New York Federal Reserve’s February survey showed an increase in households expecting their financial situation to worsen in the coming year.

That marked a shift from post-election optimism and coincided with rising inflation expectations, which could be exacerbated by higher prices stemming from tariffs.

Despite the turbulence, the U.S. economy remains resilient. The labor market remains solid, with job openings, hiring, and quits holding steady, according to the latest Job Openings and Labor Turnover Survey (JOLTS).

However, analysts caution that federal government layoffs could rise in the coming months, adding to economic uncertainty.

For now, small businesses remain cautiously optimistic, with many still viewing expansion favorably. However, near-term capital spending plans saw a sharp decline last month, raising concerns that trade disruptions and geopolitical risks could further dampen economic growth.

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