Wall Street’s recent rally hit a roadblock as trade war uncertainty continues to cloud the outlook for businesses and investors alike. After a strong two-day surge, markets lost momentum Thursday, reflecting broader concerns that tariff tensions are doing more than just rattling nerves—they’re shaking up corporate forecasts and investor confidence.
At the opening bell, the S&P 500 hovered near flat, suggesting a pause in optimism. The Dow Jones Industrial Average dropped 215 points, or 0.5%, while the Nasdaq Composite rose modestly by 0.3%. This cooling off came despite earlier hopes that President Donald Trump’s tone on tariffs and his criticism of the Federal Reserve might soften.
Airlines and Analysts Warn of Market Volatility
Among the first to adjust to the cloudy outlook was Southwest Airlines (NYSE:LUV), which reversed early losses and posted a 1.1% gain. The airline had reported stronger-than-expected Q1 results, but CEO Bob Jordan noted the company is pulling back on its flying schedule for the second half of 2025 due to economic uncertainty. “We’re controlling what we can control,” he said, emphasizing the need for caution amid trade war uncertainty.
This cautious tone isn’t limited to airlines. Across sectors, companies are echoing the same message: the inconsistent tariff policies make it almost impossible to offer reliable financial forecasts. Analysts are now closely watching which sectors will be most exposed if tariffs are prolonged or escalated.
Mixed Signals and Global Doubts
Earlier in the week, markets had rallied on optimism that the U.S. and China might be nearing a resolution. However, hopes were dashed when China denied that any meaningful negotiations were underway. In fact, a spokesperson likened suggestions of progress to “trying to catch the wind.”
Economists warn that these unpredictable policy shifts—what some have called “headline turbulence”—could do lasting damage to global economies. Tan Jing Yi of Mizuho Bank’s Asia & Oceania Treasury Department noted, “Sentiments swing from hopes of intense relief to inflicted economic gloom,” painting a stark picture of how markets are reacting to trade war uncertainty.
Corporate Earnings Highlight a Cautious Tone
Despite the headwinds, several major companies reported stronger-than-expected Q1 earnings. However, the positive news was often tempered by cautious outlooks.
PepsiCo (NASDAQ:PEP), for instance, posted solid earnings, but CEO Ramon Laguarta warned of “more volatility and uncertainty” ahead. The company slashed its profit outlook for 2025, citing increased costs from tariffs, especially a 25% duty on imported aluminum used in beverage cans. PepsiCo’s stock dropped 1.7% in early trading.
On a more positive note, Hasbro (NASDAQ:HAS) shares surged 12.7% after the toymaker reported a surprisingly strong quarter. Analysts were encouraged by the company’s ability to navigate rising costs while still delivering growth.
Bonds Signal Market Fear
The U.S. bond market added to the narrative of caution, with Treasury yields easing after a recent surge. The 10-year Treasury yield fell to 4.32% from 4.40% the previous day. Declining yields typically reflect growing investor fear, as money flows into safe-haven assets.
A report showing slightly higher-than-expected jobless claims also contributed to the drop, further underscoring a market on edge. Many investors now believe the trade war uncertainty could tip the U.S. economy into a recession unless the current tariff strategy is reversed.
Global Markets Remain Cautious
Outside the U.S., global indexes showed little conviction. European and Asian markets traded modestly, reflecting the same cautious sentiment spreading across financial centers worldwide.
As long as trade policy remains unpredictable, market swings are likely to continue. Until there’s clarity on tariffs and trade relations, the only certainty for investors is volatility.
Investors should stay diversified, monitor economic indicators, and prepare for continued disruptions as trade war uncertainty shapes global market conditions in 2025.
Featured Image – Freepik
