Put the Champagne away -- there's not much to celebrate in the stock market and the bottle will be worth more soon anyway.

President Donald Trump's latest tariff threats were the final straw to send the S&P 500 into its first correction since October 2023 on Thursday. It's not only a headache for investors but also Federal Reserve Chair Jerome Powell, who can't put off dealing with what the levies mean for monetary policy much longer.

Trump threatened to impose 200% tariffs on alcohol imports from the European Union after the bloc retaliated against U.S. levies on steel and aluminum. The cumulative effect of tariffs is becoming significant. Economists at Nomura estimate the effective tariff rate for total U.S. imports now stands at 10.1%, up from 2.4% in 2024, and they forecast a further rise to 14%.

That raises the stakes for next week's Fed policy meeting, even if the central bank is expected to hold rates at their current level. Powell has said the central bank could ignore a one-off increase in prices stemming from tariffs. But the risk is that higher costs get baked into consumer expectations and produce a more sustained inflationary effect.

Traders are currently factoring a roughly 60% chance of three rate cuts or more this year. That's despite the fact inflation reports this week suggest the Fed's preferred gauge -- the core personal consumption expenditures index -- will tick up to between 2.7% and 2.8% in February from about 2.65% in January.

Everything Powell says, and does not say, will be hyper analyzed, and investors will focus on the economic projections of Fed officials for whether the inflationary effects of tariffs are turning central bankers hawkish. That really could take the remaining fizz out of the market.

-- Adam Clark

***

S&P 500 Enters Correction Territory as Trade Wars Take Toll

The S&P 500 closed in correction territory amid heightened uncertainty and fears about the Trump administration's escalating trade war that sparked a rush to safety. Sinking stocks overshadowed news that the February producer price index and last week's initial jobless claims were lower than expected.

   -- The S&P 500 closed down 1.4% at 5,521.52, more than 10% below its record 
      close on Feb. 19. It was the fastest peak-to-correction shift since the 
      six trading days when the Covid-19 pandemic began in March 2020, 
      according to Dow Jones Market Data. 
 
   -- But stock market pullbacks of between 5% and 15% from recent highs have 
      occurred in over one-quarter of all trading days, MarketWatch reported, 
      citing Adam Turnquist, chief technical strategist at LPL Financial. That 
      makes the current 10% drawdown "nothing out of the ordinary," he said. 
 
   -- In the past, the index has declined an average of 1.7% in the first month 
      the S&P 500 enters correction territory, but generally rebounds over 
      longer time frames, gaining an average of 2.1% over the following three 
      months and nearly 5% over six months, according to Dow Jones Market Data. 
 
   -- Treasury Secretary Scott Bessent said the administration is focused on 
      the "real economy," unconcerned about the recent volatility. Still, 
      Yardeni Research is the latest to cut its S&P 500 year-end forecast, to 
      6400, from 7000. That still implies the index will finish up 8% from 
      where it started 2025. 

What's Next: While Wall Street forecasters have been lowering market targets, they may not be acting fast enough. Stocks have been selling off so quickly, that, from one perspective, the average Wall Street forecast has actually gotten more, not less, bullish over the past several weeks, said independent market watcher Jim Paulsen.

-- Connor Smith, Ian Salisbury, and Janet H. Cho

***

Tariffs Battleground Expands to Wine, Champagne, and Alcohol

President Donald Trump threatened to impose 200% tariffs on all wines, Champagnes, and other alcoholic beverages imported from the European Union. That's in retaliation for the EU's retaliatory tariffs on $28 billion worth of American goods, including whiskey, starting April 1.

   -- Trump said on social media that if the EU doesn't remove its 50% tariff 
      on whiskey, the 200% tariffs on imported alcohol would begin. The EU's 
      tariffs were triggered by Trump's 25% tariffs on imported steel and 
      aluminum starting Wednesday. 
 
   -- Several Canadian provinces yanked U.S. alcohol off store shelves after 
      Trump threatened tariffs on Canadian imports. Shares of Brown-Forman, the 
      maker of Jack Daniel's whiskey and Finlandia vodka, have dropped 8% since 
      Monday. CEO Lawson Whiting said consumers are trading down to smaller 
      bottles. 
 
   -- Chris Swonger, CEO and president of the Distilled Spirits Council of the 
      United States, called for "toasts, not tariffs" in a statement to 
      Barron's. He noted that the industry supports $200 billion in economic 
      activity, including the purchase of 2.8 billion pounds of grains from 
      American farmers. 
 
   -- Jim Bernau, the founder and president of Oregon winery Willamette Valley 
      Vineyards, told MarketWatch that the uncertainty created by Trump's 
      tariff war has destabilized the industry and eaten away at profits that 
      the tariffs were meant to protect. 

What's Next: Constellation Brands, which gets the majority of its sales from Mexican lagers including Corona and Modelo Especial, cut its fiscal-year outlook citing uncertainty about Mexico tariffs that start April 2. Constellation would need to raise prices by 12% to offset a 25% increase in tariffs, Roth MKM analyst Bill Kirk said.

-- Mackenzie Tatananni, Evie Liu, and Janet H. Cho

***

Gold Prices Hit a Record. Investors Should Be Wary.

Gold is still glistening, even as tariff worries drag down other assets such as stocks and cryptocurrencies. The precious metal keeps hitting record highs -- but that doesn't mean now is the time to pile in.

   -- Spot gold prices topped $3,000 per ounce for the first time late 
      Thursday. Investors have been flocking to the safe haven amid worries 
      that U.S. President Donald Trump's trade policies could trigger a 
      flare-up in inflation and weigh on growth. 
 
   -- Wall Street says you should buy in. J.P. Morgan and Goldman Sachs are 
      among the banks urging investors to hold bullion. BNP Paribas just raised 
      its price target, and the world's largest asset manager BlackRock has 
      been recommending gold for months as a way for investors to diversify 
      their portfolios. 
 
   -- The recommendations have been spot on so far, but the megarally isn't 
      without risks. The precious metal has been in a bull market since 
      September 2022, which raises the prospect that it has already priced in 
      much of its potential over the period and is vulnerable to corrections. 
      Early investors could also be tempted to lock in profits. 
 
   -- Signs that the U.S. economy will weather the latest disruption could also 
      weigh on gold, as it's often inversely related to GDP growth. When the 
      economy is booming, investors tend to favor riskier assets such as 
      stocks. 

What's Next: A scenario in which Trump's reforms boost rather than hinder the economy would be "terrible news" for gold, Gavekal Research founder Charles Gave wrote in a research note Wednesday. This implies a 50% fall, the note said.

-- Karishma Vanjani and George Glover

***

Senate Democrats Won't Block Spending Bill, After All

A day after saying Republicans didn't have enough votes to pass a spending bill to keep the federal government funded through September, Senate Minority Leader Chuck Schumer said Thursday evening that he will vote for the bill, paving the way for its passage.

   -- Schumer originally intended to push for a one-month funding extension as 
      today's deadline looms, but has reversed course as Democrats focus on 
      fighting against President Donald Trump's tax cuts, which Schumer said 
      were aimed at billionaires, plus potential cuts to programs like Social 
      Security, Medicare, and Medicaid. 
 
   -- Democrats were angered that the bill, which narrowly passed the House, 
      didn't include their input and provides "blank check" funding for some 
      agencies. They worry that Trump will use that leeway to make further cuts 
      to government programs and spending. 
 
   -- A federal judge ruled Thursday that mass firings of federal workers still 
      in their probationary period at six agencies couldn't proceed. Judge 
      William Alsup in Northern California district court required the workers 
      to be reinstated at the Agriculture, Defense, Energy, Interior, Treasury 
      and Veterans Affairs departments. 
 
   -- Office of Personnel Management Director Charles Ezell didn't have the 
      authority to authorize the firings, the judge said, adding to a prior 
      order that OPM rescind directives for agencies to fire probationary 
      workers. 

What's Next: The firings are the Trump administration's effort to shrink the size of the federal workforce. Around 100,000 workers have either agreed to resign or been fired to date. Next steps are expected after agencies were required to submit their reduction in force plans this week.

-- Anita Hamilton

***

Wall Street's Hoped-For M&A Boom Hasn't Materialized, Yet

Wall Street was hopeful in early November. Goldman Sachs, JPMorgan Chase, and Morgan Stanley, the reliable barometers of Wall Street's health, were awaiting a sustained revival of deal activity as the incoming Trump administration promised a lighter approach to regulation. But hopes for an M&A boom have faded.

   -- Instead of offering what they expected to be a flashing green light for 
      M&A, the unpredictability of the first 50-some days of the new 
      administration has turned into blinking yellow and red lights on Wall 
      Street. Analysts and bankers say management teams are delaying plans for 
      transactions. 
 
   -- Jonathan Rouner, international head of M&A at Nomura, said uncertainty 
      from tariffs and volatile markets are making rough seas for deals. One 
      exception is cross-border deals, with clients abroad considering 
      acquisitions in the U.S. to get around tariff barriers. 
 
   -- Eric Stetler, the head of M&A in D.A. Davidson's investment banking group, 
      said corporate clients are "treading carefully around certain industrial 
      sub-segments," such as labor-intensive projects and products that may be 
      at risk because of tariffs and immigration policy. 
 
   -- Morgan Stanley's bank analyst Betsy Graseck cut price targets for banks 
      including Goldman, Jefferies, and Bank of America, saying the expected 
      robust capital markets rebound hasn't played out. There are fewer first 
      quarter investment banking announcements and deal completions than 
      forecast. 

What's Next: Graseck expects capital markets activity to remain subdued through the second quarter, which ends in June, and possibly pick up in the third quarter if recession concerns abate.

-- Rebecca Ungarino

***

Do you remember this week's news? Take our quiz below to test your knowledge. Tell us how you did in an email to thebarronsdaily@barrons.com.

1. A trade war and sinking stock market have shaken consumer and corporate confidence, according to this company, which said the macroeconomic uncertainty has driven weaker demand. The company cut its first quarter forecasts as a result.

a. Bayer b. Delta Air Lines c. McDonald's d. Ford Motor

2. Energy Secretary Chris Wright said at the CERAWeek energy conference in Houston that the Trump administration is clearing the way for which of the following:

a. An upsurge in natural gas production and exports b. New gas pipelines in places like Alaska and New England c. Permits to ship natural gas overseas d. All of the above

3. U.S. airlines are battling with signs of a demand slowdown but Southwest has a plan to boost revenue growth -- by ending its 'Bags Fly Free' policy after how many years?

a. 34 b. 44 c. 54 d. 64

4. The consumer price index rose by 2.8% in February from a year earlier, while core CPI excluding food and energy costs ticked up 3.1%. Both were the first deceleration in inflation since when?

a. September b. July c. May d. March

5. The gap between federal revenue and government spending widened to more than $1 trillion in the first five months of the fiscal year, which starts in October, according to the Treasury Department. What drove it?

a. Spending on interest b. Spending on military programs c. Spending on public benefits and security d. All of the above

Answers: 1( b ); 2( d ); 3( c); 4( a ); 5( d)

-- Barron's staff

***

-- Newsletter edited by Liz Moyer, Patrick O'Donnell, Rupert Steiner

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 14, 2025 07:01 ET (11:01 GMT)

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