Trade War Escalates… And Target’s Big Drop 3/4/25

0:02Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money. Here's what's on tap tonight. Stocks riding a roller coaster today as President Trump's first round of tariffs go into effect. What was behind the late day fade and is there more pain to come? And off target, shares of the retail giant hitting their lowest levels in over a year. What the company had to say about tariffs and what its results say about the strength of the consumer. Plus a couple of recent tech laggards notch a wind today. How to protect your portfolio amid all this volatility. And BlackRock strikes a deal to buy ports on the Panama Canal.

0:35The implications of that move and more. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Karen Feynman, Dan Nathan, Guy Adami, and Danny Moses, founder of Moses Ventures and a host of the On the Tape podcast. We start off with a wild day of action on Wall Street after the Trump administration's tariffs on Canada, Mexico, and China went into effect at midnight. A sell-off in the last hour sent the S &P to its lowest close since Election Day, though it finished off its worst levels of the day. The NASDAQ closed just shy of correction territory, down 9.5 % from its record highs.

1:06And the Dow saw the biggest losses, shedding more than 600 points for the second day in a row. Meantime, the yield on the 10-year Treasury briefly fell as low as 4.1 % before climbing higher. But another twist after hours, stocks like Palantir, Tesla, Broadcom, all moving higher after hours as Commerce Secretary Howard Lutnick made new comments on tariff negotiations. For the latest state of play, let's get to our Megan Casella. Megan. Melissa, a truly remarkable day here for trade policy and for geopolitics. It started with all of those tariffs kicking in just after midnight on Canada, Mexico and China.

1:40Canada and China both then immediately retaliating, both with tariffs, mostly targeting agriculture and food products, but also some non-tariff measures. China blacklisted 25 U.S. companies. Canada is also taxing its electricity exports to some U.S. states, banning U.S. firms from federal Canadian government contracts. We also saw Prime Minister Justin Trudeau come out quite angry towards President Trump, calling him by his first name, calling this a very dumb move, vowing not to let it go unanswered by Canada. President Trump was never likely to let that one slide. He replied quite quickly on social media, saying that any retaliation from Canada would be met with equal escalation from the U.S.

2:18So tit-for-tat was starting to take shape here, and we seem to be at an impasse for a moment there, expecting further tit-for-tat, waiting for some calls to be scheduled. That was just until the last hour when Howard Lutnick gave a potentially consequential but somewhat vague interview saying that he thought President Trump would be able to work out a deal with Canada and Mexico that would involve meeting somewhere in the middle on tariffs. That's how he described it. Lutnick said that would probably be announced tomorrow. So a lot of cushy language there, lots of questions about what exactly that might look like and if it comes to fruition.

2:52But it is the first sign, Melissa, of any movement here, any potential compromise coming in the coming days. Melissa? I mean, Ludnick on the Sunday shows made it seem like there was a room for a last-minute sort of deal, and that didn't happen either. So, I mean, we'll see where that goes. But in terms of the retaliatory tariffs from Canada as well as Mexico, we know that President Scheinbaum of Mexico said Sunday at a rally that's when she's going to unveil the retaliatory tariffs. Do we know specifically beyond the Ontario electrical tax what the retaliation will be or when that will be announced?

3:24From Canada, some of it took effect already, about$30 billion. Canadian dollars,$20 billion, took effect at midnight, another$100 billion or so taking effect within three weeks. But they're talking about other things, tearing up some contracts potentially with Starlink, trying to get at Elon Musk, talking about restricting their exports of nickel. That's a critical material used in a lot of manufacturing. The Defense Department here buys a lot of that. So Canada really coming out swinging. Mexico, we have to wait, but it's likely to be a lot of agriculture, potentially some cars and car parts that they hit if we get to that point.

3:53So as you know, the retaliation often hurts more than the initial impact. All right, Megan, thank you. Megan Casella. Tariffs impact already being felt across industries. Nearly half of the S &P 500 mentioning tariffs in KeyOne earnings calls so far, even higher than the jump around the 2018 tariffs. Materials, staples, health care, energy among the most heavily affected groups. The topic coming up, more than 30 percent of materials sales companies calls already. So does all this combined warrant the growth scare that we've seen roiled the markets this week? Guy, what do you say? I believe it does.

4:25You know, I think the growth scare was in place. This is sort of the icing, I think, or the cherry on top. But I'll say this as well. I mean, this is something we've talked about. As a matter of fact, it's great having Danny here because over the summer, June and July, Danny, Vinnie and Porter talked about make volatility great again. And they basically asserted that in Florida a couple of months ago. And I'm of the belief that vol is going to be a story, not a one-day story, but a prolonged story. And quickly, in terms of the price action today, Karen probably was spot on. She thought, you know, open on the lows, close on the highs, and that would have been a very encouraging day.

4:57Over the last half hour, the S &P gave back 80 handles. Now, we've seen rallies of that magnitude over the last 45 minutes a day. We have not seen really a sell-off like that. So something new is sort of in the cards right now. Are we having fun yet? There's nothing that investors hate more than uncertainty. and between the new world and economic order that we're seeing in real time happen, it just makes it very difficult. Of course, tariffs are going to have an impact. It's going to take a while to play out. I'm sure some companies will use it as an excuse at various times, weather, tariffs and things like that.

5:26But it's going to be difficult. I would just say that at the height of the market this year, we were trading at 23.5 times forward earnings. So we've only adjusted 1.5 times, basically, I think, down to 22 times forward earnings. Historically, that's still a very expensive number. And with the uncertainty in the market, it's probably validated. Yeah. TD is already saying that all the tariffs that they remain in place to the beginning of August will add 0.4 percentage points to U.S. headline CPI. So in terms of the price stability that Peter Navarro promised on Swapbox yesterday morning, even through the tariffs, economists broadly are not buying that line.

6:02It was really interesting to see what happened to the 10-year you talked about at the top of the show. It opened at 4.11 or so, closed, I think, at 4.24. That's a pretty big move for a day that maybe you would have thought the yields might go lower. Go lower, yeah. Right. So that's sort of interesting. But I think this, you know, we talked about it a little bit yesterday. Part of what I think had the economy, people excited about the economy, was the animal spirits being released with fewer regulations in a very pro-business environment. So this is throwing a whole bunch of wrenches into the mechanics of that.

6:35And so I think it does weigh on CEOs, particularly ones who are involved in, you know, we talk about GM as an example of a complicated supply chain that's going to really that's going to be difficult to manage with tariffs from Mexico and Canada and back and forth. So I also think that any company that reports now, it's free. Say you have, you know, you don't know what how what it's going to be for the rest of the year. Give somewhat, you know, moderated guidance. Be conservative. Why not? It's free. Yeah, I would just say go back to 2018. We have the playbook here. You know, the trade war that started back then, it never ended.

7:13Right. It was predominantly focused on China. They put those 10 percent tariffs in place. They've been ratcheted up throughout the Biden administration. Now we have an extra 10 percent on that. And you just think about how weak China's economy is right now. And you'd say, well, that could push them into some sort of trade deal. It's not particularly clear what the concessions we're looking for. Right. We want to actually export less, import more. I mean, you know, we talk about this trade deficit goes back and forth or whatever. And I just think about the whole idea of reshoring. You know, we thought about this throughout the pandemic and the post pandemic.

7:43We haven't made a lot of progress. There's a lot of announcements about folks who are saying we're going to spend 100 billion there. or 500 billion here. You know what? Let's see it all happen. Like, that's the other thing. You know, so if I think about 2018, there were two very big bouts of volatility. Go back to Q1. What were we afraid of? We were afraid of, you know, the uncertainty in and around trade. We had interest rates that were going higher and then we had some growth fears. And then we got to Q4 of 2018 and all that stuff was still in place. Right. So I think about this like they could kind of ratchet back Canada and Mexico.

8:13They're not likely to ratchet back China right now. And again, I think you're going to have a lot of uncertainty that just sticks with it. And we have an economy here and globally that really does seem to be hanging on right now. I'm not sure what the kind of upside is or where the inflection point would be for the economy right now. I just don't see it. I'm glad you mentioned 2018 because by the end of 2018, according to an NBER working group paper, U.S. real income was reduced by$1.4 billion a month. So consumers really felt it. Companies just got their supply chains back in order post-COVID.

8:46Literally, things were just happening. Now, if you're a business, OK, what am I going to order? Do I order it now? Is it going to cost more in the future? And now you're disrupting that again. We just got that streamlined. So we talk about the markets and how it affects companies. It affects individuals, consumers, investors, the whole gamut. So it's a readjustment period. It's just happening in real time. All right. Our next guest thinks the tariff story is massively overplayed in importance. CNBC contributor David Zervos is Jeffrey's chief market strategist. David, great to have you on a day like today.

9:13Why are we all overstating the impact of tariffs here? What are we getting wrong? I just think we're missing the bigger picture, Melissa. The bigger picture is the deregulation story and the smaller federal government story and the movement of resources out of an inefficient federal government into a more efficient private sector, the reprivatization of the U.S. economy, as Secretary Besant has talked about last week. I think that's the biggest story. I know that it can be disruptive. I know that it can take a little bit of a shine off the market as we move those resources out of the public sector and into the public sector, both labor and capital resources.

9:51But the longer term picture is just so optimistic for me. And I think we're getting bogged down in a tariff discussion that's just, you know, minutiae in the grand scheme of things, to be honest with you. I think it is negotiating tactics. It's moved up. It's moved down. It's getting more geopolitical traction than it is actual economic traction. And the real storyline, people are kind of forgetting about a little bit or maybe not. I mean, the S &P is only down a couple percent for the year. So maybe the S &P is seeing through it as well. We're just making a bigger deal out of it than it is. It's a very sort of intangible or unquantifiable thing, deregulation and the privatization of the economy.

10:30David, what makes you so certain that those and it seems like those are longer term, you know, positive impacts on the economy that in the meantime, we don't fall into a recession or see economic damage before those good things may take over later on? Well, Melissa, I think, look, there is a risk that as we do that movement back to the private sector, it's disruptive. And I think the administration would probably like to have disruption early, then they can blame it on the past administration and kind of start fresh six months to nine months down the road at a slightly better place. So there is an argument that they kind of get aggressive early, make a few massive cuts, bring the chainsaws out, et cetera, et cetera.

11:14And we get a little bit of a wobble. And maybe that's what we're seeing. But I think the rate market cushions that. We've already seen a significant fall in rates. I mean, people were talking about 5 percent tenure notes and north of that, as well as rate hikes just a few months ago. That doesn't seem to be working out too well. So I think you've got a cushion with the rates. I think you've got an administration that wants to go kind of quickly and early with an aggressive doge style program as well as a DRAG program. And I think you could have some disruptions as you make that movement. But the longer term story, which is what equity should really be King off of permanent capital is just a really positive story.

11:52So we're sticking with that. And I like the idea of having rate hedges to your equity positions. I love my risk parity trades. And they've held up great through all of this because we've had the rate rally to go with a little bit of equity weakness. So again, the bond market's cushioning the stock market. That's a healthy position to be in. We didn't have that in 22. And we just barely got back to it in the end of 23 and 24. So I think there's a lot more a lot more positiveness out there than people are giving giving this credit for. And they're really focused overly on both, I think, immigration policies and tariff policies as something that's really going to drag this economy down when they're they're really sideshows to the big picture.

12:31Yeah. But, David, it really feels like the administration is playing chicken with the potential for a recession. You know, recession was not something we spent a lot of time talking about. You know, really going back to 2022, we had this kind of, you know, I guess it was a consensus view that it was going to happen in 2023. So it never happened. It kind of just kind of left the lexicon. And when you think about what's going on right now, the amount of uncertainty in such a short period of time, you know, I think there's a lot of emphasis. I think there's too much enthusiasm about Doge, for instance.

12:59This whole austerity plan is not likely to kind of, you know, do a whole heck of a lot. So I guess my question is, you know, playing chicken with the potentially for a recession that could turn into a global recession. Is that worth it to try to set up some long term things right now that we just know are not going to be accomplished anytime soon? Well, I think one day we don't know how successful this is going to be. It's it's work in progress. It looks like the attempt is going to be to do something as radical as what we saw in the 80s with the Reagan deregulation and the Reagan reprivatization, if you will.

13:32So if that's what we're in for and that's the decade we're talking about, that's pretty exciting. It all remains to be seen and things could obviously derail. The good news really is that we have so much cushion on the rate side. If things get messy, if we get two or three payroll reports that are negative or the unemployment rate scoots up to four and three quarters percent, we're going to have not just three rate cuts priced in, we'll have six or seven rate cuts priced in. And we'll have a significant cushion that comes into the private equity markets, the real estate markets, all from that long end of the bond market really pricing in a significant change in monetary policy, which we've all been waiting for and hoping for as rates normalize because they've been restricted for some time as we fought back on this inflation.

14:11And I do think the Fed will look through some temporary inflation hiccups if they're high, if they're coming from tariffs, because they're going to be one off. We've already seen a number of the presidents and a few of the governors say the same thing, that these are not changes in the outlook for anchored inflation expectations. They don't change the anchoring. They just sort of do one off price level. So, again, I don't want to it's a day where, you know, people have definitely gotten spun around and we've had a few days now people getting spun around trying to spin a pretty positive long term story.

14:44But I do recognize that we could have a fair amount of volatility, making volatility great again, as you said earlier here, is a theme I embrace and I think we're going to see it. I think this reprivatization story is actually quite volatile and it could create a quarter of negative growth. It could create a pop in the unemployment rate before we get to a much more productive and efficient economy. David, great to speak with you. Thank you. Always a pleasure, Melissa. David Zervos of Jeffries. Do you buy this narrative, Guy? In some ways, I do. You know, getting to the other side, I think, is what he's saying is going to be painful, might be volatile.

15:20And I agree with that. The question is, where is the other side? I mean, is it in October of this year? Is it sooner or is it in 2026? I mean, that's what you've got to struggle with. But I'll say this in terms of volatility. The market hasn't seen what I think we're about to embark upon in quite some time. And people are not used to days like today. And I think you're going to have to get used to it very quickly because it's not just sort of the buy and hold environment we've gotten used to. So I look at the VIX always. I think, you know, clearly it's elevated over the last few weeks. To me, it's not quite panicky yet.

15:53It's approaching, but it's not there yet. However, all that having been said, I think to me what happened in the banks today was panicky. And I like to buy when it's panicky. So I did buy some Citibank, and I think the banks are out there buying their own stock. And nobody has a bigger buyback relative to their overall market cap than Citibank. So while yields are coming in, credit spreads are widening. They're not pulling in as much as bond yields are. And that's why I think some of the reason the banks have been down. We've had this growth in private credits. It's been fueling the economy. I mean, if you get credit spreads moving wider, that could certainly halt that.

16:25All right. Well, two recently struggling mega cap tech stocks bucking the downside trend today. Alphabet getting more than 2 percent. It's best day in a month. And NVIDIA hit a more than five-month low early in the session before reversing and ending the day up 1.7 percent and on heavy volume. What do you make of this relative strength in these stocks? I mean, AI really tried to save the market for some time. Yeah, I think it's relative value. I think the way that both those stocks have sold off over the last couple of weeks, I should remember Google was making an all time high into their print.

16:53It sold off after that. What happened there? Well, they had a bump to their capex. They had decelerating revenue growth. I think a lot of investors are trying to look around and say, what is the ROI here? Where's the uptake for some of these products and services? And I think we can all see that they're going to be coming. But I think this quarter or the last few months in general, it just tells us that right now, you know, the way in which these companies are spending, it's really hard to figure out like what the long-term trajectory of this technology is going to be. And so you threw a$300 billion at this CapEx spend over the last year and a half or so, and they're kind of committed to another$300 billion right now.

17:29And if the companies are not growing and you don't hear more and more. So this is a great point, actually. So you just gave a stat about how many companies on their calls are talking about tariffs and all that sort of stuff. And what they're not talking about is use cases for generative AI and what that's doing to their businesses. So when we talk about some of the near-term effects versus the long-term effects about what's going on with this trade policy, there are meaningful effects right now. And the cap tax that's been driving this generative AI trade over the last couple of years has been very important in this economy, an economy that's been basically running at about 2.5 % over the last couple of years.

18:03So I think today, when you look at the rally that you had in NVIDIA, yeah, it was just pressed down. It was down nearly 30 % from those recent highs. It was a crowded trade. People got out of it, and people are going to be looking for opportunities to get back into both of them. And I think we were correctly cautious since that January engulfing pattern across the desk. And that proved to be right. And today's the first day in terms of price action. You can actually make a case. You can play it from the long side. I'm not saying it's going straight up from here. But, you know, that 110 low to your earlier point, that was a low that we saw basically back in September on heavy volume, which is a good sign.

18:35So for me, for the first time in a while, NVIDIA actually looks nice for a trade. Coming up, much more of the escalating trade war in today's market action, from the impact on auto stocks to how to protect your portfolio. But first, banks, one of the biggest drags in the market today, the names leading to decline, and how our traders are handling the moves next. And Target dropping after reporting results this morning, what the company had to say about price hikes, sales, and the state of the consumer. All that when Fast Money returns. Back in tune.

19:05This is Fast Money with Melissa Lee, right here on CNBC.

19:20Welcome back to Fast Money Financials, posting the biggest losses in today's market, down 3.5%. The XLF logging its worst day in nearly two years. Consumer finance names getting hit particularly hard as investors gauge the impact of tariffs on the average American household. Discover, Capital One, American Express, MasterCard, Visa, all posting outsized losses. And only one name in the KBE Bank ETF, Flagstar Financial, finished the day in the green. There wasn't that much lift either as the markets tried to pick up midday. No, not at all. And that's something to be concerned about. You know, Karen mentioned Citi.

19:53If we have a Citibank chart, and we've been collectively bullish on Citibank, I think, and that's worked out nicely. But we just traded up the levels we saw a couple years ago, which is problematic. we do a longer term chart. So, you know, I thought you'd see the rally. I didn't think you'd see this ensuing sell off. But, you know, again, just valuation if you want to play that game. To me, Citi's the most compelling one out there. If the David Zervos narrative is right, banks theoretically should be the biggest beneficiaries of deregulation, less regulation out there. Right. So this is the area that you should want to be in, in theory.

20:25They've run on hopes of M &A and the regulatory changes. They've run on the hoping that the IPO market and M &A is all coming back and they run, like I mentioned last segment, credit spreads have been really tight. And you talk about consumer finance names, they are dependent on selling everything that they create into the market. That starts to back up a little bit. And if you think about recession and the impact to the consumer, there's nothing that the banks are more exposed to than the consumer for the most part. So I agree the consumer, that's one of the risks, you know, one of the fears.

20:54Flagstar Financial, I think they were actually able to sell some of their real estate rates going a little bit lower has been good for them. But I don't know. I think that for the ones that aren't really exposed, like a Capital One or a Discover is a different customer, right, than a JP Morgan. So I agree on the M &A. It has been and seems like it will be slower. But I do think there's a lot of the deregulation, right, allowing less capital, bigger balance sheet that's been helpful yeah the last time they did that 2018 they deregulated the regional banks and then to 2023 we had like six of them go under you know so like i'm not convinced that deregulation if you think about what happened in the 2000th and you remember what happened in the 2000th i mean like you give these guys an inch and you know what they're going to do so at the end of the day like you're right they were panicky today but maybe they're pricing in a recession and you know i would take it another step forward and i know that visa mastercard they don't take credit risk.

21:53But if you're pricing in a recession right here, if you're financials, then their transaction volume is going to, you know, decline. Right. And those things trade. Look at look at pull up the visa chart. I mean, this thing looks like it was an AI story from, you know, two months ago or something like that. So that looks vulnerable to me. And then the flip side of that, I looked at like Robin Hood is down 10 percent today. And I went back up on the day. CME Group is trading at, you know, all time highs right now. It's interesting to me to look at some of these areas where they do well when the volatility picks up.