Weekly Wrap

It was another disappointing week for stocks. The market has been in a downtrend for a few weeks on the basis of growth concerns and tariff fears, which continued this week. The S&P 500 broke below its 200-day moving average and entered correction territory (i.e. 10% from its February 19 high) while the Nasdaq Composite extended its position in correction territory. 

Right out of the gate on Monday, fears about economic growth percolated after President Trump said in an interview last weekend that the economy is going through a "period of transition" and he declined to answer directly if the U.S. will experience a recession.

Trade war tensions increased after President Trump announced that the US will impose a 50% tariff on Canadian steel and aluminum imports, starting Wednesday, instead of the originally proposed 25%.

The escalation followed a retaliatory measure by Ontario, which imposed a 25% tariff on exports of electricity to the U.S. in response to the originally planned 25% tariffs on Canadian imports.

President Donald Trump also announced a potential 200% tariff on European beverage imports, including wines and spirits. This move was in response to the European Union's recent tariffs on American whiskey.

This week's inflation data was relatively positive, yet markets didn't respond in kind due to the understanding that inflation remains above the Fed's 2.0% target and trade policy may negatively impact future prints.

The Consumer Price Index (CPI) report for February showed inflation rising at a slower-than-expected pace, providing a measure of relief to markets after last month's hotter-than-expected reading. On a year-over-year basis, total CPI was up 2.8% versus 3.0% in January and core-CPI was up 3.1% versus 3.2% in January. The February Producer Price Index also contained some lower-than-expected headline prints.

Other data this week included a relatively low level of weekly jobless claims, along with a preliminary University of Michigan Index of Consumer Sentiment survey for March, which dropped to 57.9 (Briefing.com consensus 65.6) from the final reading of 64.7 for February, marking the third straight drop in sentiment. In the same period a year ago, the index stood at 79.4.

Mega cap stocks had an outsized impact on the broader equity market. The Vanguard Mega Cap Growth ETF (MGK) settled 2.6% lower. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) settled flat on the week. 

Only two S&P 500 sectors settled in the green -- energy (+2.6%) and utilities (+1.9%) -- while the consumer staples (-4.3%), consumer discretionary (-3.7%), and communication services (-2.5%) sectors registered the largest declines.

Monday:

The stock market started the new week with sharp declines after Friday's rebound. Technical factors were in play as the Nasdaq Composite (-4.0%) moved further into correction territory (i.e. a 10% decline from its high) and the S&P 500 (-2.7%) dropped below its 200-day moving average (5,734) again. It's the first time the index closed below that key level since November 2023, marking a 8.7% decline from its all-time high.

Another factor that contributed to the selling activity was ongoing fears about economic growth after President Trump said in a weekend interview that the economy is going through a "period of transition" and he declined to answer directly if the U.S. will experience a recession.

Continued fallout in the mega cap space played a big role also.

The disappointing price action became its own downside catalyst, drawing in more selling interest that impacted many stocks.

There was no US economic data of note on Monday.

Tuesday:

The stock market logged declines, again. The market has been in a steady downtrend as trade war tensions intensify and growth concerns increase. The former was relevant after President Trump announced that the US will impose a 50% tariff on Canadian steel and aluminum imports, starting Wednesday, instead of the originally proposed 25%.

The escalation follows a retaliatory measure by Ontario, which imposed a 25% tariff on exports of electricity to the U.S. in response to the originally planned 25% tariffs on Canadian imports.

Investors were also dealing with warnings about corporate earnings from several airlines and a few retailers. Delta Airlines (DAL), American Airlines (AAL), and Southwest Airlines (LUV) lowered their Q1 revenue outlook.

Dick's Sporting Goods (DKS) and Kohl's (KSS) disappointed with full-year guidance after reporting their quarterly results.

Reviewing Tuesday's economic data:

• February NFIB Small Business Optimism 100.7; Prior 102.8
• January JOLTS - Job Openings 7.740 mln; Prior was revised to 7.508 mln from 7.600 mln

Wednesday:

The S&P 500 (+0.5%) and Nasdaq Composite (+1.2%) closed higher, propelled by buy-the-dip interest in the mega cap space. The gain in NVIDIA (NVDA) was a big help in that regard.

Buyers were cautious elsewhere, however. The Invesco S&P 500 Equal Weight ETF (RSP) closed 0.5% lower and five S&P 500 sectors closed in the red.

Market participants were digesting the Consumer Price Index (CPI) report for February, which showed inflation rising at a slower-than-expected pace, providing a measure of relief to markets after last month's hotter-than-expected reading. On a year-over-year basis, total CPI was up 2.8% versus 3.0% in January and core-CPI was up 3.1% versus 3.2% in January.

Inflation is still sticking above the Fed's 2.0% target and the uncertainty around US trade policy potentially pressuring prices higher tempered some enthusiasm about the report. The tariffs on steel and aluminum imports imposed by the US has caused a ripple effect, leading Canada and the EU to announce retaliatory measures.

The market's expectations for rate cuts by the Fed were little changed by the data.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 11.2%; Prior 20.4%
• February CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.5%, February Core CPI 0.2% (Briefing.com consensus 0.3%); Prior 0.4%
  • The key takeaway from the report is that inflation overall is still sticking comfortably above the Fed's 2.0% target, and now with tariff actions ramping up -- and "reciprocal tariffs" coming April 2 -- confidence has been shaken that future inflation reports will convey undeniably pleasing inflation data.
• The Treasury Budget for February showed a deficit of $307.0 billion compared to a deficit of $296.3 billion in the same period a year ago. The February deficit resulted from outlays ($603.4 billion) exceeding receipts ($296.4 billion). The Treasury Budget data are not seasonally adjusted so the February deficit cannot be compared to the January deficit of $128.6 billion.
  • The key takeaway from the report is that the deficit now stands at a record $1.15 trln through the first five months of the fiscal year, driven in part by rising Medicare costs and increasing interest payments on government debt.

Thursday:

The stock market continued its downtrend after Wednesday's brief reprieve for the S&P 500 (-1.4%) and Nasdaq Composite (-2.0%). The indices gave up Wednesday's gains and then some, leading the S&P 500 to close in correction territory (i.e. 10% below its all-time high on February 19). The Nasdaq Composite moved further into correction territory.

There were positive-looking economic reports Thursday morning, but stocks didn't respond in kind. The February Producer Price Index contained some lower-than-expected headline prints and weekly jobless claims remained relatively low. The understanding that US trade policy may negatively impact inflation in the future overshadowed the positive reports. 

President Donald Trump announced a potential 200% tariff on European beverage imports, including wines and spirits. This move was in response to the European Union's recent tariffs on American whiskey, intensifying fears of a prolonged trade war that could hinder global economic growth.

The negative disposition in equities was also related to some corporate news. The relatively disappointing in-line guidance from Adobe (ADBE), along with disappointing guidance from SentinelOne (S) and UiPath (PATH) weighed on growth stocks. The Russell 3000 Growth Index declined 2.2%.

Reviewing Thursday's economic data:

• February PPI 0.0% (Briefing.com consensus 0.3%); Prior was revised to 0.6% from 0.4%, February Core PPI -0.1% (Briefing.com consensus 0.3%); Prior was revised to 0.5% from 0.3%
  • The key takeaway from the report is comparable to the key takeaway from the CPI report: inflation at the wholesale level, while improving, is still too high, and with the tariff battles heating up, there is concern that the disinflation isn't going to persist.
• Weekly Initial Claims 220K (Briefing.com consensus 228K); Prior was revised to 222K from 221K, Weekly Continuing Claims 1.870 mln; Prior 1.897 mln
  • The key takeaway from the report is that initial jobless claims -- a leading indicator -- held steady at relatively low levels that are consistent with an otherwise sound labor market.

Friday:

The stock market experienced a robust rally, rebounding from recent declines. The S&P 500 surged 2.1%, the Dow Jones Industrial Average climbed 674 points (1.7%), and the Nasdaq Composite advanced 2.6%.

The favorable price action derived largely from a buy-the-dip mentality after solid losses of late. Catalysts that drew in buying interest included:

• Diminishing chances of a government shutdown citing as a catalyst for buying after Senator Chuck Schumer said he would vote to keep the government funded
• Easing trade tensions between the US and Canada following reports of a productive meeting between Ontario Premier Ford and Secretary of Commerce Lutnick
• Speculation that China will soon provide more policy stimulus to boost domestic consumption
• The S&P 500 closing in correction territory yesterday (i.e. 10% decline from its all-time high on February 19)