Wall Street Declines as Inflation and Tariff Concerns Mount
Wall Street traders hoping for economic data to ease concerns about the inflationary impact of US tariffs were left disappointed. Recent reports only heightened worries about rising prices, reinforcing expectations that the Federal Reserve will not rush to cut interest rates.
Market Reversal Amid Tariff and Inflation Worries
Stocks reversed earlier gains, with the S&P 500 dropping nearly 1% as investors digested the implications.
President Donald Trump’s announcement of plans to introduce reciprocal tariffs next week further intensified trade war fears.
United States Steel Corp. declined after Trump suggested that Nippon Steel Corp. might invest in the company rather than pursue an outright acquisition. Meanwhile, equities struggled following a drop in consumer sentiment, fueled by inflation concerns.
Economic Data and Fed Rate Cut Uncertainty
A mixed employment report added to market volatility, showing slowing job growth but stronger wage increases. Nonfarm payrolls grew by 143,000 in January, following upward revisions for previous months. The unemployment rate held at 4.0%, but due to new population estimates, it’s not directly comparable to previous months.
The Federal Reserve’s rate cut timeline remains uncertain, with traders now only fully pricing in a rate cut for September rather than earlier in the year. Hourly wages rose by 0.5%, adding to inflation concerns and potentially delaying Fed action.
Major Stock and Bond Market Moves
- Nasdaq 100: -1.3%
- Dow Jones Industrial Average: -1.0%
- Magnificent Seven megacaps index: -1.9%
- Russell 2000: -1.2%
Amazon fell 4%, while Roblox Corp. is under investigation by the SEC, according to Bloomberg News.
Meanwhile, bond yields climbed, with the 10-year Treasury yield rising five basis points to 4.49%. The Bloomberg Dollar Spot Index increased 0.2%.
Friday’s Closing Levels
| Index | Close | Change | % Change |
|---|---|---|---|
| DOW JONES | 44,303.40 | -444.23 | -0.99% |
| S&P 500 | 6,025.99 | -57.58 | -0.95% |
| NASDAQ | 19,523.40 | -268.59 | -1.36% |
| US 10Y Yield | 4.495% | +0.05 | — |
| VIX | 16.54 | +1.04 | +6.71% |
Fed Officials Cautious on Rate Cuts
Federal Reserve policymakers remain cautious despite recent economic data.
- Fed Governor Adriana Kugler stated that the current benchmark rate is appropriate due to steady employment, limited inflation progress, and trade policy uncertainty.
- Minneapolis Fed President Neel Kashkari expects inflation to decrease toward the 2% target, potentially allowing the Fed to modestly lower rates by year-end.
- Goldman Sachs Asset Management’s Lindsay Rosner believes the Fed will take a measured approach in assesing the latest data.
- Charlie Ripley of Allianz Investment Management suggested that the central bank is likely comfortable maintaining its current stance, recognizing that pausing rate cuts was the right decision.
- Jason Pride of Glenmede highlighted the Fed’s likely wait-and-see approach. . “The Federal Reserve has more inflation and employment reports to analyze before its next scheduled announcement on March 19,” he said. “It is expected to remain patient before making any rate moves.”
Looking Ahead: CPI Data in Focus
Next week, all eyes will be on the US January Consumer Price Index (CPI) report, a crucial indicator for the inflation-focused Fed. Retail sales are expected to show a slowdown, according to Bloomberg Economics.
BNP Paribas strategist Guneet Dhingra suggested that while core CPI has traditionally exceeded expectations in January, this year, a downside surprise could be welcomed as positive news.
Market Outlook: Volatility Continues
The market remains choppy and directionless, with sharp reversals after short-lived rallies. Until clearer signals emerge regarding inflation trends and Fed policy, expect continued uncertainty and market swings.
Source: CBOE, Bloomberg
This commentary was written by James Gomes, a seasoned finance professional with over 30 years of industry experience, including a tenure exceeding 20 years at a prominent US bank.
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