Trump's tariffs, which impose a 25% levy on imports from Mexico and Canada and are set to take effect on Tuesday, have significantly impacted markets, including cryptocurrencies.
Market analysts are warning that the possibility of a 5% to 10% drop in the S&P 500 has increased following the tariff announcements, amid high investor exposure and elevated stock valuations. According to Goldman Sachs, there is a risk of a 5% drop in US stocks in the coming months as the Trump administration's latest round of tariffs has dampened earnings forecasts.
A hard blow to the cryptocurrency market
Trump's latest tariff announcement, which also included China while reiterating a warning to the European Union, not only impacted traditional stocks but also the cryptocurrency market.
According to data from Coinglass, liquidations in the market exceeded $2.200 billion on February 3. Concerns about inflation and global economic growth led to significant volatility in this market. Bitcoin, for example, the most capitalized cryptocurrency, fell to $91.000 per unit, experiencing one of the most significant declines in recent months. However, despite global uncertainties, the price of Bitcoin has remained stable. BTC has also been one of the biggest recoverers since Trump's tariff announcement, trading at around $101.000 per BTC, up 9% at press time.
Source: CoinMarketCap
A 30-day agreement
According to Bloomberg, Canadian Prime Minister Justin Trudeau confirmed that following talks with Trump, US tariffs will be delayed for 30 days. Meanwhile, Mexican President Claudia Sheinbaum also announced the suspension of new tariffs for one month starting today. Both governments have confirmed the mobilization of soldiers to protect their borders.
Despite the last-minute agreement, the market reaction to these new policies has been blunt. Stocks plunged across regions, gold fell and oil soared, while cryptocurrencies suffered a violent sell-off, analysts say. QCP noted that cryptocurrencies acted as a risk indicator ahead of the opening of US markets, with Ethereum (ETH) the digital asset most affected by the sell-offs over the past 24 hours.
Experts' expectations for volatility in the markets
With uncertainty surrounding the duration and effectiveness of Donald Trump's tariffs, continued volatility in the markets is expected.
David Kostin, a strategist at Goldman Sachs, said the announcements have come as a “shock” to many investors who had anticipated tariffs would only be applied if trade negotiations failed. The uncertainty has created tension in markets, especially after Trump reaffirmed that tariffs on the European Union “will definitely happen.” However, Kostin also suggested that tariffs on Canada and Mexico could be temporary, which could partially alleviate the impact on markets.
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However, if tariffs remain in place, the Goldman Sachs expert estimates a possible 2% to 3% reduction in S&P 500 earnings per share due to increased costs for companies. This estimate, according to Kostin, does not include possible additional effects from tighter financial conditions or changes in consumer and business behavior. The analysis indicates that if companies absorb tariff costs, their profit margins will decline; if they pass these costs on to consumers, they could face a drop in sales.
In addition to financial uncertainty, political uncertainty is also affecting market valuations. Taken together, Goldman Sachs warns that all of these factors could lead to a 5% drop in the fair value of the S&P 500 index if tariffs are implemented on a sustained basis. The cryptocurrency market could also be affected, especially due to the risky nature of these digital assets.
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