Stock Market Update

[BRIEFING.COM] The jaw-dropping rally seen Wednesday after President Trump announced a 90-day pause on reciprocal tariffs for most countries did not have legs today. The major indices started the session lower and remained in negative territory into the closing bell, yet they did pare their losses in the afternoon trade.

At their worst levels, the Dow, Nasdaq, S&P 500, S&P 400, and Russell 2000 were down 5.4%, 7.2%, 6.3%, 6.5%, and 6.5%, respectively, but they finished the day down 2.5%, 4.3%, 3.5%, 4.1%, and 4.3%, respectively.

The impetus for today's pullback was rooted in the following dynamics:

• The realization that the U.S. economy is not out of the woods. It is still only a "pause" on the reciprocal tariff action, and a baseline 10% tariff rate still applies. Meanwhile, there is still the draconian tariff rate for China, which was clarified by the White House today as 145% (125% reciprocal tariff + existing 20% tariff related to fentanyl).
• Renewed selling by skittish participants who saw yesterday's rally as a gift to sell at higher prices and minimize the pain of losses that followed the April 2 reciprocal tariff announcement.
• Comments from various Fed officials making it clear the Fed is worried about tariffs driving up inflation and isn't inclined to cut rates soon.
• Disappointing earnings results from CarMax (KMX 66.43, -15.62, -19.5%).
• Deficit angst as the House passed a reconciliation resolution that includes tax cuts, which some fear will not be offset with enough spending cuts to avoid adding to the budget deficit.
• Sharp losses for the dollar against other major currencies, which presumably stemmed from concerns about U.S. growth prospects, worries about the U.S. budget deficit, and waning confidence in U.S. investments on the part of foreign investors due to the policy volatility. The U.S. Dollar Index declined 1.9% to 100.98.

Notably, the March CPI report today brought good inflation news, but that didn't help sentiment because market participants are anticipating higher prices in coming months as tariff actions take root across supply chains.

Ten of the 11 S&P 500 sectors finished lower. The sole winner was the defensive-oriented consumer staples sector (+0.2%). The biggest loser was the energy sector (-6.4%), followed by information technology (-4.6%), consumer discretionary (-4.1%), communication services (-4.1%), and materials (-3.0%). The Philadelphia Semiconductor Index, up 18.7% yesterday, declined 8.0% today. The Vanguard Mega-Cap Growth ETF (MGK), up 12.2% yesterday, declined 4.1% today.

Decliners outpaced advancers by a better than 8-to-1 margin at the NYSE and by a better than 4-to-1 margin at the Nasdaq.

• Dow Jones Industrial Average: -7.1% YTD
• S&P 500: -10.4% YTD
• S&P Midcap 400: -14.0% YTD
• Nasdaq Composite: -15.1% YTD
• Russell 2000: -17.9% YTD

Reviewing today's economic data:

• Total CPI decreased 0.1% month-over-month in March (Briefing.com consensus 0.1%) and was up 2.4% year-over-year versus 2.8% in February. Core CPI increased 0.1% month-over-month (Briefing.com consensus 0.3%) and was up 2.8% year-over-year versus 3.1% in February.
  • The key takeaway from the report is that, while better than expected, it will be discounted as a lasting improvement given the tariff actions that are now taking root across supply chains.
• Initial jobless claims for the week ending April 5 increased by 4,000 to 223,000 (Briefing.com consensus 225,000). Continuing jobless claims for the week ending March 29 decreased by 43,000 to 1.850 million.
  • The key takeaway from the report is that the relatively low level of initial jobless claims remains consistent with an otherwise solid labor market and an economy still in expansion mode.
• The Treasury Budget for March showed a deficit of $160.5 billion compared to a deficit of $236.6 billion in the same period a year ago. The March deficit resulted from outlays ($528.2 billion) exceeding receipts ($367.6 billion). The Treasury Budget data are not seasonally adjusted, so the March deficit cannot be compared to the February deficit of $307.0 billion.
  • The key takeaway from the report is that the deficit so far in fiscal 2025 is 23% greater than the deficit seen at the same time in fiscal 2024.

Friday's economic lineup features:

• 08:30 ET: March PPI (Briefing.com consensus 0.1%; prior 0.0%) and Core PPI (Briefing.com consensus 0.3%; prior -0.1%)
• 10:00 ET: Preliminary April Univ. of Michigan Consumer Sentiment (Briefing.com consensus 54.8; prior 57.0)