Economic Concerns from US Trade Policy Hammers Stocks

The S&P 500 Index ($SPX) (SPY) Thursday closed down -1.78%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.99%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.79%.  March E-mini S&P futures (ESH25) are down -1.50%, and March E-mini Nasdaq futures (NQH25) are down -2.40%. 

Stock indexes on Thursday sold off sharply, with the S&P 500 and Nasdaq 100 posting 4-month lows.  Concerns about US trade policy, higher global bond yields, and disappointing tech earnings weighed on stocks Thursday.  Fears that US tariffs will start a global trade war that weakens economic growth and corporate earnings are hammering stocks.  President Trump imposed 25% tariffs on Canadian and Mexican goods on Tuesday and doubled the tariff on Chinese goods to 20% from 10%.  However, Mr. Trump granted automakers a one-month tariff exemption and exempted tariffs for one month on Canada and Mexico for all goods and services compliant with the United States-Mexico-Canada Agreement (USMCA), but reiterated that he would impose reciprocal tariffs on foreign nations on April 2.

Soaring global bond yields are bearish for stocks.  Plans announced Wednesday by Germany to amend its constitution to exempt defense and security outlays from limits on fiscal spending have sent European government bond yields soaring, with the 10-year German bund yield climbing to a 16-month high Thursday.  Also, wage demands by Japan’s largest union pushed Japan’s 10-year JGB bond yield up to a 15-year high.  Meanwhile, chip stocks retreated Thursday, led by a -19% fall in Marvell Technology after its revenue forecast failed to meet investors’ lofty expectations. 

Comments from Philadelphia Fed President Harker Thursday were negative for stocks when he said he’s concerned that the decline in price growth may not reach the Fed’s 2% target, citing “a lot of pressures building” that could prevent it from happening.  He also said, “Business and consumer confidence is starting to wane, and that’s not a good sign.”

US economic news Thursday was mixed for stocks.  On the positive side, weekly jobless claims fell more than expected, Q4 nonfarm productivity was revised higher, and Q4 unit labor costs were revised lower.  Conversely, the US trade deficit widened to a record in January as companies scrambled to secure goods ahead of President Trump’s tariffs.

US weekly initial unemployment claims fell -21,000 to 221,000, showing a stronger labor market than expectations of 233,000.

US Q4 nonfarm productivity was revised upward to 1.5% from the previously reported 1.2%.  Q4 unit labor costs were revised lower to 2.2% from the previously reported 3.0%.

The US Jan trade deficit was a record -$131.4 billion, wider than expectations of -$128.8 billion.

Market attention for the rest of this week will focus on Friday’s Feb payroll report, which is expected to show nonfarm payrolls climbing by +160,000, and the Feb unemployment rate 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 Thursday settled higher.  The Euro Stoxx 50 closed up +0.57%.  China’s Shanghai Composite Index closed up +1.17%.  Japan’s Nikkei Stock 225 closed up +0.77%.

Interest Rates

June 10-year T-notes (ZNM25) Thursday closed down -2.5 ticks.  The 10-year T-note yield rose +1.1 bp to 4.290%.  June T-notes Thursday fell to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.342%.  T-notes were under pressure Thursday on negative carryover from the sell-off in 10-year German bunds to a 16-month low.  Also, the larger-than-expected decline in weekly US jobless claims was hawkish for Fed policy and weighed on T-notes.  Hawkish comments Thursday from Philadelphia Fed President Harker knocked T-note prices to their lows when he said rising inflation pressures threaten the Fed’s progress on inflation. 

Losses in T-notes were limited on Thursday as the slump in the S&P 500 to a 4-month low boosted safe-haven demand for government debt.  T-notes also garnered support after the US Q4 nonfarm productivity was revised upward and Q4 unit labor costs were revised lower, a dovish factor for Fed policy.  In addition, a decline in inflation expectations supports T-notes after the 10-year breakeven inflation rate fell to a 2-month low Thursday at 2.323%.

European bond yields on Thursday were mixed.  The 10-year German bund yield climbed to a 16-month high of 2.933% and finished up +4.0 bp to 2.833%.  The 10-year UK gilt yield fell from a 7-week high of 4.789% and finished down -2.3 bp to 4.660%.

Eurozone Jan retail sales unexpectedly fell -0.3% m/m, weaker than expectations of a +0.1% m/m increase.

The ECB, as expected, cut the deposit facility rate by 25 bp to 2.50% from 2.75% and said interest rates are “becoming meaningfully less restrictive.” The ECB cut its Eurozone 2025 GDP forecast to 0.9% from 1.1% and its 2025 inflation ex-food and energy forecast to 2.2% from 2.3%.

Swaps are discounting the chances at 78% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Chip stocks retreated Thursday to drag the overall market lower, led by a -19% fall in Marvell Technology (MRVL) after issuing a Q1 revenue forecast of $1.88 billion, below some estimates of up to $2 billion.  Also,  ON Semiconductor Corp (ON), Micron Technology (MU), ARM Holdings Plc (ARM),  and Broadcom (AVGO) closed down more than -5%.  In addition, ASML Holding NV (ASML), KLA Corp (KLAC), Analog Devices (ADI), Lam Research (LRCX), and Texas Instruments (TXN) closed down more than -3%. 

The sell-off in the Magnificent Seven stocks Thursday weighed on the broader market.  Nvidia (NVDA) closed down more than -5% to lead losers in the Dow Jones Industrials.  Also, Tesla (TSLA) closed down more than -5%, and Meta Platforms (META) closed down more than -4%.  In addition, Amazon.com (AMZN) closed down more than -3%, Microsoft (MSFT) closed down more than -1%, and Alphabet (GOOGL) closed down -0.39%.

MongoDB (MDB) closed down more than -26% to lead losers in the Nasdaq 100 after forecasting 2026 adjusted EPS of $2.44 to $2.62, well below the consensus of $3.37.  

Palantir Technologies (PLTR) closed down more than -10% to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed director Moore sold $1.74 million of shares on Monday.

Economic concerns weighed on travel and cruise stocks Thursday. Royal Caribbean Cruises Ltd (RCL), Carnival (CCL), and Norwegian Cruise Line Holdings (NCLH) closed down more than -6%.  Also, United Airlines Holdings (UAL) closed down more than -5% and Booking Holdings (BKNG) closed down more than -4%.  In addition, Expedia Group (EXPE) and Delta Air Lines (DAL) closed down more than -3%.

Victoria’s Secret (VSCO) closed down more than -8% after forecasting full-year net sales of $6.2 billion-$6.3 billion, weaker than the consensus of $6.34 billion. 

Iron Mountain (IRM) closed down more than -5% on signs of inside selling after an SEC filing showed CEO Meaney sold $21.2 million of shares on Monday and Tuesday.

Fastenal (FAST) closed up more than +4% to lead gainers in the Nasdaq 100 after reporting February sales rose +5% y/y versus +1.9% y/y in January.

Veeva Systems (VEEV) closed up more than +7% after reporting Q4 revenue of $720.9 million, better than the consensus of $699 million. 

Homebuilding stocks rallied Thursday after Seaport Global Securities upgraded Lennar, D.R. Horton, and KB Home to buy from neutral.  As a result, Lennar (LEN), D.R. Horton (DHI), and KB Home (KBH) closed up more than +3%.

Burlington Stores (BURL) closed up more than +8% after reporting Q4 revenue of $3.28 billion, stronger than the consensus of $3.24 billion.

Zscaler (ZS) closed up more than +2% after reporting Q2 adjusted EPS of 78 cents, better than the consensus of 69 cents, and raising its full-year adjusted EPS forecast to $3.04-$3.09 from a previous forecast of $2.94-$2.99, stronger than the consensus of $2.99.

Kroger (KR) closed up +2% after reporting Q4 adjusted EPS of $1.14, better than the consensus of $1.11. 

Earnings Reports (3/7/2025)

Advantage Solutions Inc (ADV), Aemetis Inc (AMTX), Aldeyra Therapeutics Inc (ALDX), Cartesian Therapeutics Inc (RNAC), GCT Semiconductor Holding Inc (GCTS), Gencor Industries Inc (GENC), Genesco Inc (GCO), IGM Biosciences Inc (IGMS), Immersion Corp (IMMR), Mammoth Energy Services Inc (TUSK), National Beverage Corp (FIZZ), Ovid Therapeutics Inc (OVID), Preformed Line Products Co (PLPC), Savara Inc (SVRA), Silvercrest Asset Management G (SAMG), Valhi Inc (VHI), Werewolf Therapeutics Inc (HOWL), XOMA Royalty Corp (XOMA).