ETFs Under Pressure as Tariffs and Fed Uncertainty Weigh on Markets

The U.S. equity market opened cautiously on May 6, 2025, with the S&P 500 and Nasdaq Composite each falling 0.7% within the first half-hour of trading, while the Dow Jones Industrial Average dipped 0.3%. This decline came amid heightened uncertainty over President Trump’s newly imposed 100% tariffs on foreign-made movies and the Federal Reserve’s upcoming interest rate decision. Despite a nine-day winning streak for the S&P 500 and Dow—the longest since 2004—investors grew wary of escalating trade tensions and their potential economic fallout.

The Tariff Effect: Media Stocks Plunge, Gold Rises

The most immediate catalyst for market volatility was the administration’s surprise tariff announcement targeting foreign films. The 100% duty on imported movies, aimed at curbing production incentives in Canada and the U.K., triggered sharp declines in media stocks:
- Netflix (NFLX) fell 3%, Walt Disney (DIS) dropped 1%, and Paramount Global (PARA) slid over 1%.
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Meanwhile, gold surged to $3,320 per ounce, with gold miners like Newmont Mining (NEM) gaining 3%. The metal’s safe-haven appeal highlighted investor concerns about tariff-driven inflation and geopolitical risks.

Tech and Energy Sectors Feel the Pinch

The tech sector faced its own headwinds, with Apple (AAPL), Amazon (AMZN), and Tesla (TSLA) each dropping over 2%. Oil majors like Chevron (CVX) and Exxon Mobil (XOM) also fell 2% as crude prices hit multi-year lows due to oversupply and demand uncertainty. The tech sell-off underscored broader fears about corporate profit margins under tariff pressures, while energy’s decline reflected the broader macroeconomic slowdown narrative.

A Leadership Transition at Berkshire Hathaway

Adding to market volatility was Warren Buffett’s announcement of his retirement as CEO of Berkshire Hathaway (BRK.B). Shares of the conglomerate plummeted nearly 6% in early trading, erasing gains from a record high the prior week. The move highlighted the challenges of succession planning at a firm synonymous with Buffett’s legacy, rattling investor confidence in its long-term prospects.

International Markets: Outperforming but Not Immune

While U.S. equities stumbled, international markets had already outperformed. The iShares MSCI EAFE ETF (EFA), tracking European, Australian, and Far Eastern equities, had gained 14% year-to-date—a stark contrast to the S&P 500’s 3% decline. However, the EFA’s resilience faced scrutiny as investors questioned whether it could withstand a potential global slowdown.

Fed Policy Uncertainty: The Rate Cut Debate

The Federal Reserve’s upcoming decision loomed large. Analysts like Mike Wilson of Morgan Stanley argued that U.S. equities remained attractive despite risks, citing late-cycle dynamics and a weaker dollar. Yet, the 10-year Treasury yield rose to 4.35%, up from 4.32% on May 2, signaling reduced confidence in near-term rate cuts. A yield above 4.5% could trigger broader market instability, Wilson warned.

The Recession Buy Indicator: A Contrarian Signal?

The “Recession Buy Indicator” (RBI)—a signal to invest in equities once a recession is officially confirmed—gained traction. While the National Bureau of Economic Research (NBER) had yet to declare a recession, lagging indicators suggested one might be underway by summer. Historically, stocks have risen 12 months after a recession’s start, offering a potential contrarian opportunity.

Conclusion: Navigating Crosscurrents

The May 6 market action underscored the fragility of a U.S. equity rally fueled by corporate earnings and hopes of tariff policy shifts. With the Fed’s next move and trade negotiations unresolved, investors face a precarious balancing act. Key takeaways:
1. Sector Rotation: Defensive assets like gold and healthcare may outperform as volatility persists, while tech and energy sectors face margin pressures.
2. Geopolitical Risks: The EFA’s YTD gains (14%) highlight international equity appeal, but investors must weigh geopolitical risks against valuation advantages.
3. Fed Watch: A 10-year yield above 4.5% could trigger a sell-off, as Morgan Stanley’s analysis warns.
4. Leadership Transition: Berkshire Hathaway’s stumble illustrates the risks of relying on legacy firms amid leadership changes.

In this environment, a diversified portfolio—tilted toward quality growth, defensive plays, and international exposure—seems prudent. As the NBER’s recession confirmation nears, markets may finally find clarity—but until then, caution remains the watchword.