Investing.com - The S&P 500 closed lower Monday, but above the worst levels of the day after President Donald Trump's decision to pause tariffs on Mexico eased fears somewhat about the economic impact of a bruising global trade war.
At 4:00 p.m. ET (21:00 GMT), the Dow Jones Industrial Average fell 161 points, or 0.4%, the S&P 500 0.9%, and the NASDAQ Composite 1.3%.
Following a "very friendly" call with Mexico, President Trump said that he would pause tariffs on Mexico for a month after his Mexican counterpart Claudia Sheinbuam agreed to supply 10,000 troops to help secure the U.S.-Mexico border against illegal immigration.
During the interim, the U.S. and Mexico would continue talks on reaching a more permanent deal. The delay to tariffs, which Trump announced on Saturday, and included a 25% tariff on Canada and 10% on China,offered hope that the president would likely use tariffs as tool to negotiate rather than risking a major trade war.
Analysts expect the tariffs to drive up US inflation, given that they will be paid largely by domestic importers. Higher inflation diminishes the prospect of more interest rate cuts from the Federal Reserve.
“The resulting surge in US inflation from these tariffs and other future measures is going to come even faster and be larger than we initially expected… the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut,” analysts at Capital Economics wrote in a note.
Trade-sensitive stocks including U.S. automakers such as General Motors Company (NYSE: GM ), Ford Motor Company (NYSE: F ), and Stellantis NV (NYSE: STLA ), who import some components used in production from Mexico, erased some of their losses.
Constellation Brands (NYSE: STZ ) stock, which was under heavy pressure after a number of Canadian provinces pulled US alcohol from their government-run liquor stores in retaliation for the US tariffs, also moved off session lows.
Away from the turmoil surrounding tariffs, this week will be the biggest to date for fourth-quarter earnings, which have become increasingly important in determining the state of the market.
More than 120 companies in the S&P 500 are set to report their results, including the likes of Google-parent Alphabet (NASDAQ: GOOG ) and e-commerce giant Amazon (NASDAQ: AMZN ), which are set to unveil their quarterly figures on Tuesday and Thursday, respectively.
A slew of other major firms, including Alibaba (NYSE: BABA ), AMD (NASDAQ: AMD ), Walt Disney (NYSE: DIS ), Qualcomm (NASDAQ: QCOM ) and Uber (NYSE: UBER ), are also due to report this week.
As far as economic data is concerned, the January manufacturing PMI number is out later in the session, but most eyes will be on the January nonfarm payrolls report will also be out Friday.
"Net headwinds to January payrolls should slow gains to 140,000," Morgan Stanley (NYSE: MS ) estimated in a recent note, citing the impact of wildfires, a swing toward colder weather and a new strike.
Ahead of the jobs data later this week, Atlanta Federal Reserve President Raphael Bostic on Monday cautioned that the Fed may have to wait "for a while" before resuming rate cuts to gauge the impact of prior round of rate cuts on the economy at a time when fears over a trade war are muddying the economic outlook.
(Peter Nurse, Ambar Warrick contributed to this article.)