Market Minute: Tariff Fears and Economic Concerns Weigh on Investor Sentiment
Bears are winning the battle right now. U.S. stocks extended their losses this week as growing concerns over tariffs and a weakening economic outlook weighed on investor sentiment. The S&P 500 fell 1.6% yesterday, erasing its year-to-date gains and marking a 4.2% decline since last Wednesday. Nvidia’s (NVDA) earnings didn’t rescue the market as many had hoped. The results were great but failed to grab the attention of institutions that remain reluctant to buy more stock.
Volatility is rising as broader market vulnerability to macroeconomic risks is being priced in. The 10-year Treasury yield has fallen to its lowest level since late 2024 as investors seek the safe haven of bonds while equities pull back. The market’s recent decline comes amid a cluster of disappointing economic data, including weak consumer and business sentiment readings. This is the third consecutive month-on-month decline in consumer confidence, bringing the index to the bottom of a three-year range. U.S. economic growth slowed to 2.3% in 4Q 2024, its weakest pace in three quarters, driven by a sharp drop in business investment.
Retail investors who have historically propped up markets during dips are now showing signs of unease. Bearish sentiment among individual investors has also risen to its highest level since September 2022, reflecting concerns over high stock valuations, tariffs, and the potential for an economic slowdown. Inflation fears are also still weighing on markets, with the Federal Reserve closely monitoring the Personal Consumption Expenditures (PCE) Price Index reported today. The core PCE is expected to show a 2.6% annual increase, signaling persistent inflationary pressures above the Fed’s 2% target.
While the S&P 500 is only 4.6% below its all-time high as of yesterday’s close, the market appears to be in a holding pattern, awaiting clearer signals from the credit market and economic data. The reality is that a 4% decline doesn't fall into a correction camp yet despite the uncomfortable unease rapid declines cause investors. The optimistic buy the dip crowd might suggest that the current pullback could precede a larger correction if credit spreads widen, and price-to-earnings (P/E) ratios decline further. The stock market is grappling with a mix of tariff-related uncertainties, inflation concerns, and signs of economic deceleration. While the current pullback may not yet signal a full-blown correction, investors remain cautious as they await clearer direction from economic data and central bank policy.
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Charles Schwab and all third parties mentioned are separate and unaffiliated, and are not responsible for one another's policies, services or opinions.
