March 5, 2025
The U.S. stock market staged a modest recovery on Wednesday, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all edging higher after a turbulent start to the week. Investors cautiously welcomed signs of potential tariff relief for Canada and Mexico, even as fresh economic data painted a mixed picture of the U.S. economy.
The Dow Jones Industrial Average (^DJI) climbed 0.6%, while the S&P 500 (^GSPC) rose 0.4%, and the Nasdaq Composite (^IXIC) gained 0.2%. The rebound followed two consecutive days of steep losses, driven by fears over President Donald Trump’s escalating trade policies and their potential impact on global economic growth.
Tariff Relief on the Horizon?
Commerce Secretary Howard Lutnick sparked optimism late Tuesday when he hinted that the Trump administration could soon scale back its recently imposed tariffs on Canada and Mexico. Speaking in an interview, Lutnick suggested that the 2020 United States-Mexico-Canada Agreement (USMCA) could serve as a framework for compromise, potentially easing the 25% tariffs on imports from the two countries.
“We’re looking at meeting somewhere in the middle,” Lutnick said, adding that an announcement could come as early as Wednesday.
The news provided a much-needed boost to automakers, which have been among the hardest hit by the tariffs. Shares of General Motors (GM) surged 4%, while Ford (F) and Stellantis (STLA) rose 2% and 6%, respectively. The auto sector has been particularly vulnerable to the tariffs, as many manufacturers rely heavily on cross-border supply chains and imports from Mexico and Canada.
President Trump, in a Tuesday night address to Congress, acknowledged the market turbulence caused by his trade policies but remained defiant. “There’ll be a little disturbance, but we’re OK with that. It won’t be much,” he said, emphasizing his belief that tariffs would ultimately benefit the U.S. economy.
Economic Data Sends Mixed Signals
While tariff developments provided some relief, investors were also grappling with a slew of economic data that underscored both resilience and fragility in the U.S. economy.
The ADP National Employment Report revealed that private-sector job growth slowed sharply in February, with just 77,000 jobs added—far below economists’ expectations of 140,000 and a significant drop from January’s revised figure of 186,000. The weak jobs data reignited concerns about a potential economic slowdown, particularly as the labor market has been a key pillar of strength in recent years.
However, a more optimistic note came from the Institute for Supply Management (ISM), which reported that activity in the U.S. services sector expanded at a faster pace in February. The ISM Services Index rose to 53.5, up from 52.8 in January and above the consensus forecast of 52.5. A reading above 50 indicates expansion.
“February was the third month in a row with all four subindexes—Business Activity, New Orders, Employment, and Supplier Deliveries—in expansion territory,” said Steve Miller, chair of the ISM’s business survey committee. “This is the first time this has happened since May 2022.”
Despite the positive tone, Miller cautioned that anxiety over tariffs and federal spending cuts continues to weigh on business sentiment.
Market Reaction and Sector Performance
The mixed economic data and tariff developments led to a cautious rally across major indices. The S&P 500 and Nasdaq, both of which had hit four-month lows earlier in the week, managed to claw back some losses.
Automakers were among the top performers, buoyed by hopes of tariff relief. Luxury retailer Canada Goose (GOOS) also saw its shares rise by 2%, while copper prices surged over 5% after President Trump floated the possibility of a 25% tariff on imports of the metal.
On the flip side, Abercrombie & Fitch (ANF) saw its stock tumble nearly 6% after the retailer issued a subdued sales growth forecast for the year, citing weaker consumer spending and the impact of tariffs. Similarly, Campbell Soup (CPB) shares fell more than 5% after the company missed revenue expectations and provided soft guidance for the full year.
Fed Rate Cut Expectations Grow
The shifting economic landscape has also fueled speculation about the Federal Reserve’s next move. Markets are now pricing in three interest rate cuts in 2025, up from earlier expectations of two. Traders are betting there’s a 50% chance the Fed will lower rates at its May meeting, according to the CME FedWatch Tool.
While rate cuts are typically seen as a positive for markets, the current narrative is tinged with concern. “Fed cuts because of weak economic data is not a good thing for markets anymore,” said Citi equity strategist Drew Pettit. “If we were talking about this two months ago, ‘Fed cuts against a resilient backdrop’ was good for markets.”
Global Markets and Commodities
The ripple effects of U.S. trade policies were felt across global markets. In Hong Kong, shares of CK Hutchison Holdings (0001.HK) surged over 20% after the company announced a $19 billion deal to sell a significant portion of its global ports business to a consortium led by BlackRock (BLK). The move was seen as a strategic response to geopolitical tensions and trade barriers.
Meanwhile, copper prices rallied sharply, with Comex copper futures rising 5.5% to $4.81 per pound. The surge came after President Trump hinted at imposing a 25% tariff on copper imports, sparking fears of supply disruptions and higher costs for manufacturers.
Looking Ahead
Investors are now turning their attention to Friday’s nonfarm payrolls report, which will provide a clearer picture of the labor market’s health. Economists expect the U.S. economy to have added 200,000 jobs in February, with the unemployment rate holding steady at 3.7%.
In the meantime, the market remains on edge, balancing hopes for tariff relief against concerns about economic growth and inflation. As Ross Mayfield, investment strategy analyst at Baird, noted, “We still have to deal with the tariff stuff, but there was a big part of this sell-off that was about weaker economic growth. Today’s data at least helps that narrative a bit.”
For now, the stock market’s recovery remains fragile, with investors closely watching for any signs of progress on trade negotiations and further clues about the Fed’s next steps.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult a financial advisor before making any investment decisions.