U.S. stocks ended sharply lower on Wednesday as Nvidia warned about steep charges from new U.S. curbs on its chip exports to China and as Federal Reserve Chair Jerome Powell said U.S. economic growth appears to be slowing. The TSX managed to end slightly in the green, thanks to rallies in the materials and energy sectors, as gold spiked to another record high.
Powell, in remarks at the Economic Club of Chicago, said larger-than-expected tariffs likely mean higher inflation and slower growth. But he noted that the U.S. economy is still in a solid position, and that the Fed is waiting for greater clarity before considering policy changes. He characterized recent market volatility as a logical processing of the Trump administration’s dramatic shifts in tariff policy.
The Fed tries to keep inflation stable at 2% while sustaining maximum employment as well.
“I do think we’ll be moving away from those goals, probably for the balance of this year. Or at least not making any progress,” due to the impact of tariffs that have proved larger, at least as announced, than even the most severe scenarios penciled into initial Fed planning estimates, Powell said. He called Trump’s tariff plans “fundamental changes” that don’t provide businesses and economists with any clear parallels to study.
Stocks added to declines from earlier in the day after Powell’s comments, with Nvidia and other chipmaker stocks among the biggest decliners.
“Powell is confirming what investors have been worried about, and that is the likelihood of slowing economic growth and more stubborn inflation as a result of the tariffs,” said Sam Stovall, chief investment strategist at CFRA Research.
“He also said that don’t necessarily rely on the ‘Fed put’, meaning: don’t rely on the Fed to sort of bail us out of this situation. Maybe that was sort of an indication that, ‘gee… we really don’t have the safety net’.”
Some companies are already seeing big effects because of changes from Washington.
Nvidia dropped 6.9% after it said the U.S. government is restricting exports of its H20 chips to China, citing worries that they could be used to build a supercomputer. The restrictions could mean a hit of $5.5 billion to Nvidia’s results for the first quarter, covering charges related to inventory and purchase commitments.
Advanced Micro Devices sank 7.3% after it said U.S. limits on exports to China for its own chips may mean a hit of up to $800 million for inventory and other charges.
The uncertainty around Trump’s trade war has been scrambling plans for companies across industries and around the world. It’s so dynamic that United Airlines gave two different financial forecasts for how it may perform this year, one if there’s a recession and one if not.
The airline said it made the unusual move to give twin forecasts because it believes it’s “impossible to predict this year with any degree of confidence.” United’s stock finished roughly flat even though it reported a stronger profit for the latest quarter than analysts expected.
Many investors are bracing for a possible recession because of Trump’s tariffs, which he has said he hopes will bring manufacturing jobs back to the United States and trim how much more it imports from other countries than it exports. A survey of global fund managers by Bank of America found expectations for recession are at the fourth-highest level in the last 20 years.
The World Trade Organization said Wednesday it expects tariffs to cause a 0.2% decline in the volume of world merchandise trade for 2025. That’s if the tariff situation remains as it was on Monday. Trade could shrink by 1.5% this year if conditions worsen, the WTO said.
All told, the S&P 500 fell 120.93 points to 5,275.70. The Dow Jones Industrial Average dropped 699.57 to 39,669.39, and the Nasdaq composite sank 516.01 to 16,307.16.
In contrast to Wall Street, the S&P/TSX Composite Index ended up 38.86 points, or 0.2% at 24,106.79, its fourth straight day of gains and its highest closing level since April 3.
The Bank of Canada paused its interest rate cutting campaign and said that a that a long-lasting global trade war could trigger a significant recession in Canada and lead to inflation temporarily rising above 3%. The Canadian dollar rose back to above 72 US cents after the decision, and Canadian bond yields rose slightly.
The materials group, which includes metal mining shares, rose 1.3% as gold surged to a fresh record high. U.S. gold futures gained 3.3 per cent to settle at $3,324.50.
“Gold remains heavily supported by a broadly weaker dollar, uncertainty around tariff announcements and fears about a global recession,” said Lukman Otunuga, senior research analyst at FXTM. “Beyond $3,300, it’s all about psychological levels for gold prices. Bulls may target $3,400, $3,500, and upwards. However, a bout of profit-taking or positive U.S.-China trade developments could trigger a selloff.”
The price of oil also rose, settling 1.9% higher at US$62.47 a barrel. The TSX energy sector added 2% and consumer staples ended up 0.9%, with grocery retailer Loblaw Companies Ltd notching a new record high.
Among the TSX sectors that lost ground was industrials. It declined 0.9% while consumer discretionary ended 0.7% lower, weighed by declines for auto parts stocks.
Reuters, The Associated Press, Globe staff