US stock indexes are down. Why is Trump's possible repeal of duties a bad thing?

The first trading session of September, which is traditionally considered a weak month for the US stock market, started with a sell-off. The main indices fell after the Court of Appeals last week recognized Donald Trump's "reciprocal" duties as illegal. This not only increases uncertainty in the market, but also threatens the return of billions of dollars in tariff revenues already received.

The S&P 500 index fell by 1.4%, the technology Nasdaq Composite collapsed by 1.8%, the Dow Jones blue-chip index lost about 1.2%, CNBC shows. Investors are fixing profits on shares that have become leaders of the "bull" market, the channel notes. Thus, quotes of Nvidia fell by 2.8%, and Palantir lost almost 3% of its value. Index of small-capitalization stocks Russell 2000 fell by 0.5%.

CNBC attributes the sell-off to uncertainty surrounding a U.S. federal appeals court ruling that on Friday, August 29, found most of Donald Trump's global duties illegal and sent the case to a lower court for further proceedings. The president called the decision "highly politicized" and said he would appeal it to the Supreme Court. For now, the duties remain in effect.

Although initially trade restrictions caused concerns about inflation and contributed to the growth of government bond yields, the mood changed in the summer - bond investors were happy about additional revenues from import duties, explains CNBC. According to Tax Foundation estimates, in 2025 they should bring $172.1 billion, which would be a significant help for the country with a growing budget deficit. If the decision to declare the duties illegal remains in force, the possible return of funds already collected will be on the agenda, which could lead to a sharp rise in the volume of Treasury bonds and their yields, predicts Ed Mills of Raymond James.

"[A possible] Supreme Court ruling against (...) reciprocal duties will reduce the risk of a large-scale escalation of trade barriers, which is positive for markets," says Aniket Shah, head of sustainability and transition strategy at Jefferies. - However, short-term uncertainty may increase as some trade agreements may need to be renegotiated."

Fears of inflated fiscal problems have already led to a sharp rise in U.S. Treasury yields. The yield on benchmark 10-year government bonds jumped more than six basis points to 4.29%. The yield on 30-year securities rose to 4.98%. This also pressures the stock market, writes CNBC.

Other pressures include a standoff between Trump and one of the Fed's board governors, Lisa Cook, whom the president is trying to fire. For markets, this is a signal that the independence of the regulator is threatened.

Investors are also waiting for important economic statistics this week - first of all, the report on non-farm payrolls and the unemployment rate for August, which is scheduled for release on Friday. These data may influence the Fed's rate decision at its next meeting in mid-September.

This month is historically considered the worst for the stock market. According to Stock Trader's Almanac, since 1950, the S&P 500 index has declined by an average of 0.7% in September. And in recent years, the statistics have gotten even worse: over the past five years, the average decline of the S&P 500 in September amounted to 4.2%, CNBC recalls.

Rates on government bonds in Europe also jumped: yields on 30-year bonds in Germany, France and the Netherlands reached the highest since 2011, when the debt crisis hit the region, and the yield on 30-year British gilts rose to the highest level since 1998, CNBC quotes Deutsche Bank calculations.

"European economies are being hit by a new wave of sovereign risk - with the U.K. and France looking most vulnerable as they face fiscal instability, political uncertainty and a loss of confidence in the bond market," said Ed Yardeni, president and chief investment strategist at Yardeni Research, in a research note.

This article was AI-translated and verified by a human editor