Nasdaq up 0.56% Despite New Tariffs and Possible Government Shutdown
Stocks are climbing today after a positive PCE report for August that point to a strong economy even with new tariffs coming soon.
Quick overview
- All three major indices rose on Friday morning despite new pharmaceutical tariffs announced by President Trump and the looming threat of a government shutdown.
- The recent Personal Consumption Expenditures report showed inflation at 2.9%, which, while above the Federal Reserve's target, did not prevent a recent interest rate cut.
- Higher-than-expected spending and income in the PCE index indicate a strengthening economy, contributing to the stock market's upward movement.
- The government faces a funding deadline on Wednesday, with ongoing disputes between Republicans and Democrats over healthcare coverage potentially leading to a shutdown.
All three major indices climbed on Friday morning, which is surprising since President Donald Trump announced new pharmaceutical tariffs and the government is facing a potential shutdown.
Stocks fell for several days in a row this week but are back up for Friday, and that is thanks to a Personal Consumption Expenditures report for August which was in line with expectations. Inflation is still at 2.9%, which is higher than the Federal Reserve’s 2% target, but not so high that it kept the Fed back from issuing a recent interest rate cut.
Both spending and income were higher than anticipated for the PCE index, which bodes very well for the economy. That means that consumers are earning more and then doing more with their money, and that is reflected in the stock market since the stock indices are close to all-time highs. In fact, today’s upward shift could push them right back there to record highs.
Is a Government Shutdown Possible?
Both Republican and Democrat members of Congress are locked in a battle over spending. If they cannot come to an agreement soon, then the government will go into shutdown mode. The major debate is over the demand for more healthcare coverage in the budget. The Democrats are pushing this topic hard, and the Republicans are offering plenty of resistance.
The funding deadline is Wednesday, and if the two parties cannot reach an agreement by then, many aspects of the government will shut down. The Democrats want to reverse many of the healthcare tax cuts that were made in the big budget bill this summer, but they may not be successful in making that happen in time for the looming budget decision.
Stocks Are Elevated Even with New Tariffs Coming
President Donald Trump has announced a number of new tariffs that will go into effect on October 1st. These tariffs will affect pharmaceuticals, upholstered furniture, kitchen cabinets, and heavy trucks. The pharmaceuticals will be hit with a 100% levy, while furniture will be taxed 30%. Kitchen cabinets will receive a 50% tariff, and heavy trucks will be taxed 25%.
Some analysts and economists worry that we have yet to see the full effect of all of Trump’s tariffs on the economy. There has been an expectation all year long the inflation will dramatically increase and profits will drop as the new tariffs take effect. So far, that has not been the case, and the stock market is still breaking records with its elevated numbers.
The Nasdaq rose 0.56 on Friday morning after news of the PCE index broke. The S&P 500 climbed 0.33%, and the Dow Jones was up a very healthy 0.82%. These indices were all low for the past few days, but this positive news about the economy and inflation have helped to spur an upward shift for now.
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