Stocks Roiled by Tariff Angst

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -1.12%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.83%.  June E-mini S&P futures (ESM25) are down -1.21%, and June E-mini Nasdaq futures (NQM25) are down -1.88%. 

Stock indexes retreated Wednesday because of concerns that US trade policies could derail the economy and boost inflation.  Stocks are under pressure due to US trade uncertainty as the markets await more clarity on tariff policies and the economic outlook ahead of President Trump’s April 2 deadline for new reciprocal tariffs.  Losses in stocks accelerated Wednesday when President Trump said he would announce tariffs on the auto industry after the markets close.

Also, the weakness in the Magnificent Seven stocks and chip makers Wednesday weighed on the overall market.  In addition, stocks were under pressure after US Feb core capital goods orders unexpectedly declined.  On the positive side, energy stocks are climbing today, with the price of WTI crude up more than +1% at a 3-week high.

Stocks rallied earlier this week on signs that the new tariffs may be less expansive and more targeted than originally feared, with President Trump saying he would “probably be more lenient than reciprocal.” 

US MBA mortgage applications fell -2.0% in the week ended March 21, with the purchase mortgage sub-index up +0.7% and the refinancing mortgage sub-index down -5.3%.  The average 30-year fixed rate mortgage fell -1 bp to 6.71% from 6.72% in the prior week. 

US Feb capital goods new orders (core) nondefense ex-aircraft and parts unexpectedly fell -0.3% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 7 months.  The markets remain on guard about reduced US corporate capital spending due to tariffs and economic uncertainty.

Hawkish Fed comments on Wednesday weighed on stocks and bonds.  Chicago Fed President Goolsbee said the Fed is no longer on the “golden path” witnessed in 2023 and 2024, and the next Fed rate cut may take longer than anticipated because of macroeconomic uncertainty. Also, Minneapolis Fed President Kashkari said inflation “is above our 2% target, so we have more work to do,” but we should be able to reduce interest rates in the next year or two as price pressures ease.  In addition, St. Louis Fed President Musalem said it’s not clear that any inflationary impact from tariffs will prove temporary, and secondary effects could prompt the Fed to hold interest rates steady for longer.

Market attention will focus on Thursday’s Q4 GDP report, which is expected to be unrevised at +2.3% (q/q annualized), and March pending home sales are expected to be up +1.0% m/m.  On Friday, Feb personal spending is expected to be +0.5% m/m, and Feb personal income is expected to be +0.4% m/m.  Also, the Feb core PCE price index, the Fed’s preferred inflation gauge, is expected to be +0.3% m/m and +2.7% y/y.  Finally, on Friday, the revised March University of Michigan US consumer sentiment index is expected to remain unchanged at 57.9.

Heightened geopolitical risks in the Middle East are negative for stocks.  Israel continues its airstrikes across Gaza, ending a two-month ceasefire with Hamas, and Israeli Prime Minister Netanyahu vowed to act “with increasing military strength” to free hostages and disarm Hamas.  Israel also deployed troops in Syria as part of its new defense doctrine. Also, the US continues to launch strikes on Yemen’s Houthi rebels.  US Defense Secretary Hegseth recently said strikes would be “unrelenting” until the group stops attacking vessels in the Red Sea.  The Houthi rebels said they would respond by attacking US vessels in the Red Sea. 

Stocks have been under pressure over the past three weeks due to fears that US tariffs will weaken economic growth and corporate earnings.  On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  On March 8, Mr. Trump reiterated that he would impose reciprocal tariffs and additional sector-specific tariffs on foreign nations on April 2. 

The markets are discounting the chances at 18% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed down -1.16%.  China’s Shanghai Composite Index closed down -0.04%.  Japan’s Nikkei Stock 225 climbed to a 3-1/2 week high and closed up +0.65%.

Interest Rates

June 10-year T-notes (ZNM25) Wednesday closed down -6 ticks.  The 10-year T-note yield rose +2.1 bp to 4.336%.  June T-notes were under pressure Wednesday on hawkish Fed comments.  Chicago Fed President Goolsbee, Minneapolis Fed President Kashkari, and St. Louis Fed President Musalem said US trade policies could boost inflation and prompt the Fed to hold interest rates steady for longer.  Also, rising inflation expectations are bearish for T-notes as today’s 10-year breakeven inflation rate rose to a 3-week high of 2.377%.  In addition, weak demand for the Treasury’s $70 billion auction of 5-year T-notes weighed on T-notes as the auction had a bid-to-cover ratio of 2.33, below the 10-auction average of 2.39.

European bond yields on Wednesday moved lower.  The 10-year German bund yield fell -0.3 bp to 2.795%. The 10-year UK gilt yield fell -2.5 bp to 4.728%.

UK Feb CPI rose +2.8% y/y, weaker than expectations of +3.0% y/y. Feb core CPI rose +3.5% y/y, weaker than expectations of +3.6% y/y.

ECB Governing Council member Villeroy de Galhau said the ECB can still cut interest rates as it has almost achieved its aim of bringing inflation back to the 2% objective.

ECB Governing Council member Holzmann warned that additional defense spending by Eurozone countries and US trade policy risk stoking consumer prices, and he wouldn’t vote to cut interest rates at the next ECB meeting.

Swaps are discounting the chances at 76% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Weakness in the Magnificent Seven stocks Wednesday weighed on the overall market.  Tesla (TSLA) closed down more than -5%, and Alphabet (GOOGL) closed down more than -3%.  Also, Amazon.com (AMZN) and Meta Platforms (META) closed down more than -2%.  In addition, Microsoft (MSFT) and Apple (AAPL) closed down more than -1%. 

Nvidia (NVDA) closed down more than -5% to lead losers in the Dow Jones Industrials after the Financial Times reported that China’s National Development and Reform Commission is advising Chinese groups to use chips that meet strict requirements in new data centers and expansion of existing facilities, and discouraging the use of Nvidia’s H20 chips as they do not satisfy these new rules. 

Chip makers sold off Wednesday and were a drag on the broader market.  ARM Holdings Plc (ARM) closed down more than -7% to lead losers in the Nasdaq 100, and Marvell Technology (MRVL) closed down more than -7%.  Also, Broadcom (AVGO) and Advanced Micro Devices (AMD) closed down more than -4%.  In addition, Intel (INTC) closed down more than -3%, and Lam Research (LRCX), Micron Technology (MU), KLA Corp (KLAC), and NXP Semiconductors NV (NXPI) closed down more than -2%.

Defensive food producers and beverage makers rose Wednesday due to weakness in the broader market.  Constellation Brands (STZ) and Molson Coors Beverage (TAP) closed up more than +3%.  Also, Mondelez International (MDLZ), Tyson Foods (TSN), JM Smucker (SJM), Hormel Foods (HRL), the Campbell’s Company (CPB), Conagra Brands (CAG), Hershey (HSY), General Mills (GIS) and Kraft Heinz (KHC) closed up more than +2%. 

Energy stocks and energy service providers are moving higher today, with the price of WTI crude climbing to a 3-week high.  As a result, Devon Energy (DVN), Occidental Petroleum (OXY), Diamondback Energy (FANG), Diamondback Energy (FANG), Hess Corp (HES), Exxon Mobil (XOM), Chevron (CVX), and Valero Energy (VLO) closed up more than +1%.

Cintas (CTAS) closed up more than +5% to lead gainers in the S&P 500 and Nasdaq 100 after raising its full-year EPS estimate to $4.36-$4.40 from a previous estimate of $4.28-$4.34, stronger than the consensus of $4.33.

Dollar Tree (DLTR) closed up more than +3% after selling its Family Dollar chain to Brigade Capital Management and Macellum Capital Management for about $1 billion. 

Chewy (CHWY) closed down more than -1% after forecasting 2026 net sales of $12.30 billion to $12.45 billion, the midpoint below the consensus of $12.43 billion. 

CarMax (KMX) closed up more than +1% after Stephens upgraded the stock to overweight from equal weight with a price target of $90. 

Earnings Reports (3/27/2025)

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