U.S. stocks drop sharply; caution on inflation release, Chinese tariffs

Investing.com-- U.S. stocks fell sharply Thursday after investors digested relatively benign inflation data amid continuing concerns over the escalation in the Sino-U.S. trade war.

At 09:35 ET (13:35 GMT), the Dow Jones Industrial Average dropped 855 points, or 2.1%, the S&P 500 index fell 130 points, or 2.4%, and the NASDAQ Composite declined 465 points, or 2.7%.

March CPI weaker than expected

Data released earlier Thursday showed that U.S. consumer prices increased by less than anticipated in March on an annualized basis, and actually declined month-on-month.

The consumer price index rose by 2.4% in the twelve months through March, after moving up by 2.8% in February. On a monthly basis, the figure decreased by 0.1%, compared to a previous uptick of 0.2%.

Economists had expected readings of +2.5% year-on-year and +0.1% month-on-month.

While these figures would point to weakening inflationary pressures, and thus less need for the Federal Reserve to cut interest rates again, analysts have been at pains to point out that they cover a period before the implementation -- and eventual delay -- of President Donald Trump’s sweeping tariffs.

Caution prevails despite Trump’s 90-day tariff pause

The overall one remains one of caution even after the main Wall Street indexes posted their largest daily percentage gains in more than a decade after Trump late Wednesday announced a pause on reciprocal tariffs for most U.S. trading partners.

The pause did not, however, extend to China. Instead, Trump raised tariffs on Chinese imports to 125% from 104%, raising trade tensions between the world’s two largest economies.

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China had hiked tariffs on U.S. imports to 84%, from 34% on Wednesday, in retaliation to Trump’s first increase of U.S. tariffs, and these duties came into effect earlier Thursday.

China’s commerce ministry said on Thursday that China is open to dialogue with the U.S. but this must be on the basis of mutual respect and equality.

Pressure, threats and blackmail are not the right way to deal with China, ministry spokesperson He Yongqian told a regular press briefing when asked about whether the world’s two largest economies have started tariff negotiations.

China will "follow through to the end" if the U.S. insists on its own way, he said.

Investors worried that the trade spat between the two largest economies in the world could easily result in a global recession.

Additionally, the 10% blanket duty on almost all U.S. imports will remain in effect, the White House said. The announcement also does not appear to affect duties on autos, steel and aluminium that are already in place.

"As such caution remains warranted - and remember President Trump does need revenue to fund his promised tax cuts. It would be a surprise if tonight’s announcement was really the return of ‘common sense’," ING analysts said in a note.

Goldman Sachs has cut its growth forecasts for China, now expecting the Asian giant’s real GDP to grow 4.0% in 2025 and 3.5% in 2026, down from its previous forecasts of 4.5% and 4.0%, respectively.

Constellation Brands points to tariff woes

In the corporate sector, Constellation Brands (NYSE:STZ) stock fell 1% after the brewer, which makes Corona beer, forecast fiscal 2026 profit below expectations, expecting steep levies imposed by the Trump administration to hit its beers and spirits business.

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CarMax (NYSE:KMX) shares fell 15% after the used vehicle retailer reported fourth-quarter earnings below expectations, prompting selling after this stock had gained over 11% during the last 12 months.

Crude retreats on Chinese concerns

Oil prices fell on concerns over the escalating trade war between the U.S. and China.

At 09:35 ET, Brent futures dropped 4% to $62.87 a barrel. U.S. West Texas Intermediate crude futures fell 4.3% to $59.70 a barrel.

The benchmark crude contracts had settled 4% higher on Wednesday, following the announcement of a tariff pause for most countries, after sliding as much as 7% during the session.

But the higher U.S. tariffs on China still leave plenty of uncertainty in the markets. Any impact to global growth from the levies left in place on China -- the world’s largest crude importer -- could weigh on demand for oil.

(Ayushman Ojha contributed to this article.)

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