Stocks Edge Higher on Talk of Auto Sector Tariff Support

Stocks rose for a second day on Tuesday, as markets reacted positively to the suggestion of tariff relief for the automotive sector and a possible US-UK trade deal.

On Wall Street, the S&P 500 and Nasdaq composite indexes opened slightly higher. The Morningstar US Market Index gained 0.5%.

The yield on the 10-year US Treasury note was 4.37%, down from 4.42% on Monday.

The Stoxx Europe 600 Index and Morningstar Europe Index were up around 1% at the time of the US open. Amid remarks from President Donald Trump that his administration was “looking at something to help some of the car companies,” shares in Volkswagen were up around 3% and Stellantis STLA was 6% higher. UK stocks rose as US Vice President JD Vance talked up the prospect of a US-UK trade deal. Shares in French luxury giant LVMH, which until recently was the largest stock in Europe, fell 8% on a first-quarter sales miss.

Will the Positive Market Momentum Last?

Trump told reporters on Monday night that his administration was “looking at something to help some of the car companies, where they’re switching to parts that were made in Canada, Mexico, and other places. And they need a little bit of time, because they’re going to make them here.”

These remarks are the latest sector-focused statement from Trump, whose comments on the widespread use of tariffs to shield the US economy from overseas imports have sent stock markets into correction mode over the past two weeks.

“There will certainly be more twists and turns in the tariff story unfolds,” says Michael Field, chief European market strategist at Morningstar. “LVMH’s earnings are the only bad news today, but otherwise, Trump’s comments on making things a bit easier for automakers, and generally being flexible, is fuel to the fire for the positive momentum. That said, issues between the US and China are not yet resolved, so Europe is simply on hold for now. It is possible we will see a further escalation in the trade dispute.”

Why is Trump Putting Tariffs on Auto Manufacturers?

On April 2, Trump confirmed his administration would implement a 25% worldwide import tariff on all automobiles and automobile parts imported into the United States. The only exceptions would come through the US Mexico-Canada Agreement, or USMCA.

According to Morningstar equity analyst Rella Suskin, this will affect European auto manufacturers negatively, though how much is yet to be determined. “Despite the downward revisions under this scenario, we continue to believe there is a sufficient margin of safety at current prices, as shares trade at a significant discount to our valuations,” she says.

Suskin explains: “BMW and Mercedes export approximately 50% of their US production, which may be affected by retaliatory tariffs, possibly increasing the negative impact on our fair values. Meanwhile, Ferrari and Porsche are the most exposed. However, their superior pricing power and the positive effect that price increases have on the residual values of their customers’ existing cars reduce the overall impact of tariffs on their financials. This applies more to wide-moat Ferrari than narrow-moat Porsche.”