S&P 500 Steady as Investors Focus on Earnings; Fed Weighs Tariff Risks and Strong Labor Data

Investors Focus on Earnings as Fed Eyes Tariff Uncertainty

Investors are shifting their attention back to corporate earnings, brushing aside initial concerns over tariffs. Despite U.S. President Donald Trump’s recent tariff announcements, market sentiment has improved following a 30-day pause on duties for Mexican and Canadian goods. Meanwhile, Federal Reserve officials remain cautious, noting the potential inflationary impact of these trade policies.

Labor Market Data in Focus

Markets are awaiting Friday’s nonfarm payrolls report for a clearer picture of U.S. employment. Economists surveyed by Dow Jones expect 175,000 new jobs for the month, with unemployment holding steady at 4.1%. Ahead of this release, investors will also monitor weekly jobless claims and speeches from Fed Governor Christopher Waller and San Francisco Fed President Mary Daly.

Wednesday’s ADP report showed stronger-than-expected job growth, with private payrolls rising by 183,000—outpacing the 150,000 estimate and slightly exceeding December’s figures. A resilient labor market adds another layer of complexity to the Fed’s rate outlook as policymakers assess the broader economic landscape.

Fed Officials Weigh Tariffs and Inflation Risks

Federal Reserve officials are increasingly vocal about the uncertainty surrounding Trump’s tariffs and their potential economic impact. Chicago Fed President Austan Goolsbee warned that tariffs could disrupt supply chains, particularly in the auto industry, where cross-border production makes costs difficult to absorb. Richmond Fed President Thomas Barkin outlined three critical factors: the scope of tariffs, foreign retaliation, and whether businesses pass costs to consumers.

While some policymakers argue tariffs are a one-time price shock rather than a sustained inflation driver, Goolsbee suggested this round of duties could be broader and more prolonged than those imposed in 2018. If inflation rises in response, the Fed could face a difficult decision on whether to act.

Fed Cautious on Rate Cuts

Despite 100 basis points of rate cuts in late 2024, Fed Vice Chair Philip Jefferson signaled no rush to ease policy further. Speaking at Swarthmore College, Jefferson emphasized patience in assessing the administration’s evolving stance on tariffs, immigration, and deregulation. Meanwhile, Boston Fed President Susan Collins noted the limited historical precedent for such sweeping trade measures, adding another layer of uncertainty for policymakers.

Fed Chair Jerome Powell maintained a neutral stance, stating it is too early to gauge the economic impact of these policies. However, with the central bank keeping rates in the 4.25%-4.50% range, traders remain divided on the timing of future adjustments.

Markets Look Past Tariff Concerns

Investors appear to view the tariff dispute as a short-term disruption rather than a fundamental market threat. While the initial reaction was cautious, sentiment improved once Trump delayed the Mexican and Canadian levies. Ultimately, the market’s primary focus remains on earnings, as corporate results continue to drive stock valuations.

Barring a significant inflation spike, traders expect the Fed to maintain its current policy stance. With strong labor data and resilient economic fundamentals, equities are likely to remain steady in the near term.

More Information in our Economic Calendar.