Stocks Fall on Trade Tensions But Chip Stocks Help Soften Losses

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -1.22%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.36%.  March E-mini S&P futures (ESH25) are down -0.77%, and March E-mini Nasdaq futures (NQH25) are up +0.12%. 

Stock indexes retreated on Tuesday, with the S&P 500 and Nasdaq 100 falling to 4-month lows and the Dow Jones Industrials falling to a 7-week low. Worries about escalating global trade tensions undercut equity markets again Tuesday.  New US tariffs began on Tuesday on US imports from Canada, Mexico, and China, and Canada and China retaliated.  Bank stocks and travel companies were also under pressure Tuesday, leading to losses in the broader market.  However, a rebound in chip stocks in afternoon trade lifted the overall market from its worst levels. 

Hawkish comments Tuesday from New York Fed President Williams were negative for stocks when he said that there’s still a lot of uncertainty about US tariff policy and what other countries will do in response, but they’ll “likely lead to somewhat higher prices this year.”

Canada on Tuesday announced a package of counter-tariffs against US-made products in response to the US tariffs effective immediately and includes 25% tariffs on about C$30 billion ($20.6 billion) worth of goods sold by US exporters, with a second round of tariffs on C$125 billion of US exports in three weeks, including big-ticket items like cars, steel, and aluminum. Canada is the largest single buyer of US goods, and vice versa.

China on Tuesday announced tariffs as high as 15% on US agricultural goods, effective March 10, and banned trade with some defense companies in retaliation for US tariffs.

Market attention will focus on President Trump’s address to a joint session of Congress Tuesday evening.  On Wednesday, the Feb ISM services index is expected to fall -0.1 point to 52.7.  On Friday, Feb nonfarm payrolls are expected to rise by +160,000, and the Feb unemployment rate is expected to remain unchanged at 4.0%.  Meanwhile, Feb average hourly earnings are expected to remain unchanged from Jan at +4.1% y/y.  Also, on Friday, Fed Chair Powell will give the keynote speech on the economic outlook at Chicago Booth’s 2025 US Monetary Policy Forum. 

The markets are discounting the chances at 7% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 dropped to a 2-1/2 week low and closed down sharply by -2.77%.  China’s Shanghai Composite Index recovered from a 3-week low and closed up +0.22%.  Japan’s Nikkei Stock 225 fell to a 5-1/2 month low and closed down -1.20%.

Interest Rates

June 10-year T-notes (ZNM25) Tuesday closed down -5 ticks.  The 10-year T-note yield rose +4.9 bp to 4.204%.  June T-notes Tuesday fell from a 4-1/2 month high, and the 10-year T-note yield rebounded from a 4-1/2 month low of 4.104%.  Long liquidation emerged in T-notes when 10-year German bunds retreated after German Chancellor-in-waiting Merz said Germany would set up a 500-billion-euro fund for defense and infrastructure investments. Also, hawkish comments from New York Fed President Williams weighed on T-notes when he said US tariffs would likely boost inflation this year.

T-notes on Tuesday initially extended Monday’s gains on carryover support from Monday’s weaker-than-expected US ISM and construction spending reports. Also, Tuesday’s US tariffs on Canada, China, and Mexico fueled concerns about slowing global growth, which is a supportive factor for T-notes.  In addition, T-notes have increased safe-haven demand due to weakness in equity markets. 

European bond yields on Tuesday finished mixed.  The 10-year German bund yield rose +0.4 bp to 2.495%. The 10-year UK gilt yield fell -2.1 bp to 4.534%.

The Eurozone Jan unemployment rate was unchanged at a record low of 6.2%, showing a stronger labor market than expectations of 6.3%.

The European Union (EU) proposed extending 150 billion euros in loans to boost defense spending in the EU and activating a mechanism allowing countries to spend an additional 650 billion euros on defense over four years without triggering budgetary penalties.   

Germany’s Bundesbank, in a report Tuesday, said the country should loosen constitutional borrowing limits to free up as much as 220 billion euros of fiscal space through 2030 to boost infrastructure and military spending and recommended a significantly higher ceiling of as much as 1.4% of GDP for structural net borrowing. 

Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

Bank stocks were under pressure Tuesday and weighed on the broader market.  Citigroup (C), Bank of America (BAC), and Discover Financial Services (DFS) closed down more than -6%, and Capital One Financial (COF) and Morgan Stanley (MS) closed down more than -5%.  Also, KeyCorp (KEY), Wells Fargo (WFC), American Express (AXP), and Northern Trust (NTRS) closed down more than -4%.  In addition, Goldman Sachs (GS), Fifth Third Bancorp (FITB), JPMorgan Chase (JPM), and M&T Bank Corp (MTB) closed down more than -3%. 

Cruise line operators and travel stocks retreated Tuesday on concerns about the impact of escalating trade tensions on global growth.  Royal Caribbean Cruises Ltd (RCL), Carnival (CCL), Delta Air Lines (DAL), United Airlines Holdings (UAL), and Norwegian Cruise Line Holdings (NCLH) closed down more than -5%. 

Tesla (TSLA) closed down more than -3% after reporting its China Feb vehicle deliveries sank -49% y/y to 30,688 units. 

Chip stocks recovered from early losses on Tuesday and moved higher, lifting the overall market from its worst levels.  Marvell Technology (MRVL) and Advanced Micro Devices (AMD) closed up more than +2%.  Also, GlobalFoundries (GFS), Nvidia (NVDA), ASML Holding NV (ASML), ARM Holdings Plc (ARM), and KLA Corp (KLAC) closed up more than +1%.

Best Buy (BBY) closed down more than -13% to lead losers in the S&P 500 after forecasting full-year adjusted EPS of $6.20 to $6.60, with the midpoint below the consensus of $6.55. 

Okta (OKTA) closed up more than +25% after reporting Q4 revenue of $682 million, better than the consensus of $669.8 million, and forecast 2026 revenue of $2.85 billion-$2.86 billion, stronger than the consensus of $2.80 billion. 

Walgreens Boots Alliance (WBA) closed up more than +5% after Bloomberg reported that Sycamore Partners is nearing an acquisition of the company. 

ON Holding (ONON) closed up more than +6% after reporting a Q4 gross margin of 62.1%, better than the consensus of 61.7%. 

Labcorp Holdings (LH) closed up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $300. 

Earnings Reports (3/5/2025)

Brown-Forman Corp (BF/B), Marvell Technology Inc (MRVL), MongoDB Inc (MDB), The Campbell’s Company (CPB), Thor Industries Inc (THO), Veeva Systems Inc (VEEV), Zscaler Inc (ZS).