U.S. Stock Market Sinks Following New Tariff Announcement

The U.S. Stock market is experiencing significant decline after President Trump announced sweeping new tariffs on Wednesday after the market closed. By 1:10 p.m. ET on Thursday, the blue chip Dow Jones Industrial Average had plummeted over 1,300 points (3.1%). Similarly, the broad market S&P 500 saw a decrease of 3.9%, while the tech-heavy Nasdaq Composite was down by 4.9%.

At this point, shares of Apple (NASDAQ: AAPL) had dropped more than 8%, Meta Platforms (NASDAQ: META) fell over 6%, and shares of Alphabet (NASDAQ: GOOGL) were down more than 3%.

Understanding the Impact of New Tariffs

During his press conference, Trump revealed tariffs starting at a minimum base rate of 10%, which could increase significantly. To establish tariff levels, Trump evaluated each nation’s trade surplus with the U.S. in relation to its total exports. The derived percentage reflects what the U.S. would impose in tariffs, which is then halved for reciprocal tariffs on imports. Even nations that export more to the U.S. than they import are set to face 10% tariffs.

For example, by his calculations, China imposes hidden tariffs of 67% on U.S. imports, leading to a new tariff rate of 34% on Chinese goods. Notably, countries like Vietnam and Cambodia are facing even steeper tariffs of 46% and 49%, respectively. Many economists and experts challenge the soundness of these calculations.

Concerns for Major Tech Companies

Given the uncertainty surrounding these tariffs, investors are understandably worried about their potential consequences for major companies like Apple. On Thursday, Apple experienced its most drastic trading day in five years. Despite this, Bank of America analyst Wamsi Mohan reduced his price target for Apple from $265 to $250 but maintained a buy rating.

Mohan emphasized the risks Apple faces if its products are subjected to tariffs. These could reduce the company’s profits by $20 billion and shrink gross margins by 5 percentage points, projecting an estimated earnings loss of $1.24 per share by 2026. He also noted that manufacturing iPhones in the U.S. could elevate costs by 20% compared to production in China.

Nonetheless, Mohan believes there is flexibility for Apple, allowing the company to possibly adjust prices, streamline its supply chain, or pursue exemptions to mitigate these impacts.

Other tech giants like Meta and Alphabet significantly depend on digital advertising for revenue. Therefore, they too may experience adverse effects from the tariffs and slower economic conditions. Analysts at Oppenheimer project a 16% revenue impact for Meta and a 15% impact for Alphabet due to these circumstances.

Market Response and Future Outlook

With broad tariff implementation and prevailing uncertainty, many stocks in the Stock market are declining. The repercussions on consumers and businesses remain uncertain, leading investors to be cautious. Currently, there are few options for investors to avoid the fallout. The anticipated “Trump put” has not yet materialized.

However, for those willing to take a long-term approach and endure volatility, stocks within the Magnificent Seven are currently trading at significantly lower valuations. After Thursday’s downturn, Apple trades at approximately 28 times forward earnings, with Meta at 21.4 times and Alphabet at under 17 times forward earnings. These valuations are over 20% below their 52-week highs. Although the market may remain tumultuous, these megacap firms are expected to sustain their strong positions in technology and artificial intelligence sectors.

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Suzanne Frey, an executive at Alphabet, sits on The Motley Fool’s board of directors. Randi Zuckerberg, a former director at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is also on this board. Bank of America is a promotional partner of Motley Fool Money. Bram Berkowitz does not hold positions in any mentioned stocks. The Motley Fool recommends Alphabet, Apple, Bank of America, and Meta Platforms.

The views and opinions expressed herein are solely those of the author and do not reflect those of Nasdaq, Inc.