This Week's Key Financial Catalysts

The past week saw financial markets navigating significant turbulence as economic data, corporate earnings, and geopolitical events weighed heavily on investor sentiment. From tariff concerns to Federal Reserve commentary, stock prices and bond yields responded to a variety of catalysts that painted a complex picture of economic uncertainty and policy shifts.

Tariffs Back in Focus: Market Reacts to Trade Policies

Investor sentiment took a hit following an announcement from the White House that tariffs on Mexico and Canada would proceed as scheduled after a one-month delay. This policy shift sparked renewed trade tensions and sent ripples through equity markets, particularly in technology and consumer discretionary stocks which were hurt by inflation fears and slower growth prospects. Large-cap technology names such as NVIDIA, Microsoft, and Amazon faced pronounced selling pressure, dragging the broader market lower.

Further exacerbating concerns was a report indicating that the U.S. government was considering tighter restrictions on semiconductor exports to China. This news drove the Philadelphia Semiconductor Index sharply lower, with Tesla suffering its own setback as reports suggested a 45% decline in European sales year-over-year.

Wednesday, President at his first Cabinet meeting made it clear he does not intend to drop tariff plans set to go into effect on March 4th for Canada and Mexico; additionally, reciprocal tariffs would begin on April 2 once his department finished its trade review. On top of these announcements, he said that an additional 10% tariff would be applied to the existing 10% tariff on China imports. There were also rumors of a 25% tariff for the EU that could be announced soon.

Economic Data Spurs Flight to Safety

A widely followed gauge of consumer sentiment, the Consumer Confidence Index, posted its largest monthly decline since August 2021. This deterioration, coupled with an uptick in 12-month inflation expectations, rattled equity investors and bolstered demand for safe-haven assets such as U.S. Treasuries.

Several other economic announcements this week indicate slower growth in Q1. The January new home sales decreased 10.5% month-over-month in January. Initial jobless claims spiked 22,000 for the week ending February 22 to 242,000 – still well below recession levels. The second estimate for Q4 GDP was little changed at 2.3% but the strength came from consumer and government spending which is set to decline in the current quarter based on cuts and higher prices/tariffs.

Friday’s January Personal Income and January PCE Prices gave a lift to stocks just after the open to assist dip-buying from Thursday’s route, but didn’t change the outlook that while year-over-year inflation was down, month-over-month was a noticeable 0.5% and with a jump in the savings rate to 4.6% from 3.5%, it’s not a good sign for Q1 GDP forecasts. In fact, the Atlanta Fed’s GDPNow forecast is suggesting a GDP decline of 1.5% versus prior estimates of 2.3% growth. Many call two quarters of declining GDP as the unofficial definition of a recession so economic results will be an important catalysts moving forward as the beginning of a trade war will make any earnings forecasts unmeaningful at this time.

Tax Cut Hopes Briefly Lift Equities

Stocks found some footing following the passage of a congressional resolution aimed at implementing $4.5 trillion in tax cuts over the next decade. Optimism surrounding potential fiscal stimulus pushed major indices higher in early trading, briefly lifting the S&P 500 above a key technical threshold. However, the rally proved short-lived as sellers emerged, pressuring stocks back below resistance levels.

Adding to investor uncertainty was an Axios report suggesting that the White House had instructed federal agencies to prepare for mass layoffs, reinforcing concerns about potential policy shifts that could impact economic stability. Short-term pain is likely the result of spending cuts moving forward and it’s still too early to celebrate on tax cuts when the bill must makes its way through the Senate.

Fed Commentary and Growth Concerns Weigh on Markets

Investor expectations for Federal Reserve policy took a hit as multiple Fed officials signaled reluctance to cut interest rates in the near term. Comments from voting and non-voting members of the Federal Open Market Committee suggested that inflation concerns remained a priority, leading to a recalibration of rate cut expectations.

Compounding economic anxieties were weaker-than-expected labor market indicators, including a jump in weekly jobless claims and a record-low reading in the pending home sales index. These data points reinforced worries about slowing economic momentum, particularly in the housing sector, where affordability constraints continued to weigh on demand. It will clearly be a tough economy for the FOMC to make forward-projections given the volatility in fiscal policy straight out of the gates from the Trump administration.

As the week progressed, bond markets increasingly priced in the likelihood of slower growth ahead, with investors seeking refuge in longer-duration assets. The interplay between economic data, Fed policy expectations, and global uncertainties continued to shape market dynamics, highlighting the fragile balance between inflation control and growth sustainability.

Geopolitical Tensions Add to Market Jitters

Geopolitical risks resurfaced as a contentious meeting between President Trump and Ukrainian President Zelenskyy led to heightened diplomatic tensions. Reports indicated that the discussion escalated into a heated exchange, prompting Trump to issue a stark warning that Ukraine was "gambling with World War III." The abrupt shift in geopolitical tone rattled investors, leading to a sharp intraday decline in equity markets Friday.

Chart of the Week

This week, I continue my focus on the S&P 500 with two charts. While the index failed at its 50-day moving average and fell to key support, the percentage of stocks above the 50-day moving average is not oversold yet. That’s to say, that weakness could continue until enough damage encourages a buy-the-dip reaction from bulls. While the chart pattern is still constructive, I think there’s enough technical damage in addition to sector rotation (see previous CoTW on the XLY vs XLP) that the main question now on every trader’s mind is how low can we go?

The 200-day average is a good level below current support to eyeball. I then focus on VIX levels and other oversold indicators like the percentage of stocks above the 50-day moving average and the 14-day Relative Strength Indicator (RSI), both with readings below 30 to indicate whether enough weakness is there to encourage buying. News events that can change the narrative are also key and why it’s so important not just to look at charts, but to also focus on weekly news.

Conclusion

This week underscored the complex forces at play in the financial markets, with trade tensions, economic data, Federal Reserve policy, and geopolitical risks all contributing to heightened volatility. While brief moments of optimism emerged—driven by tax cut hopes and select corporate earnings—the prevailing theme remained one of uncertainty and caution. While normally a steadying force for technology, Nvidia’s earnings failed to reinvigorate momentum trading. The drop in Bitcoin briefly below $80k was yet another sign that speculators were moving to the sidelines.

With tariffs set to take effect soon and geopolitical tensions simmering, investors will be closely monitoring upcoming economic indicators and policy developments – which are anything but predictable. The trajectory of inflation, labor market trends, and central bank actions will play a pivotal role in shaping market sentiment in the weeks ahead. In the meantime, heightened volatility appears likely to persist as financial markets continue to grapple with a rapidly evolving economic and political landscape.

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