Stock Market Drops Amid Tariff Uncertainty and Economic Data

Stocks tumbled last week as uncertainty over President Donald Trump’s tariff policies and their potential impact on the economy weighed on investor sentiment.

Major Indexes Decline

The S&P 500 (^GSPC) fell more than 3%, while the Dow Jones Industrial Average (^DJI) dropped over 2%, shedding about 1,000 points. The Nasdaq Composite (^IXIC) led the declines, falling nearly 3.5% and entering correction territory—more than 10% below its December record high.

As markets grapple with trade concerns, investors are closely watching inflation reports and economic indicators this week for further clues about the impact of tariffs.

Key Inflation Reports in Focus

Wall Street awaits updates on the Consumer Price Index (CPI) and Producer Price Index (PPI) to assess how tariffs may affect inflation.

• February CPI is expected to show annual inflation of 2.9%, slightly lower than January’s 3%.
• Core CPI, excluding food and energy, is forecasted to rise 3.2% annually, down from 3.3% in January.
• Economists anticipate a 0.3% month-over-month CPI increase, slower than January’s 0.5% rise.

Wells Fargo senior economist Sarah House noted that this CPI release will only provide an “initial taste” of the tariff impact, warning that inflation may remain stuck near 3% for much of the year.

Federal Reserve Cautious on Rate Cuts

Markets continue to price in three interest rate cuts for 2025, according to Bloomberg data. However, Federal Reserve Chair Jerome Powell signaled on Friday that rate reductions are not imminent.

“We do not need to be in a hurry and are well-positioned to wait for greater clarity,” Powell stated, reinforcing expectations that the Fed will take a cautious approach.

Recession Fears or Market Reset?

While weaker economic data and tariffs have fueled concerns about a slowdown, analysts are not widely predicting a full recession.

Goldman Sachs increased its probability of a U.S. recession within 12 months from 15% to 20%. However, corporate earnings calls indicate limited recession fears, with just 13 S&P 500 companies mentioning the term in recent discussions—the lowest since 2018.

Former Council of Economic Advisors chairman Jason Furman commented, “I don’t think the economy is turning on a dime in a negative direction, but all uncertainty indicators are pointing toward slowing.”

Market Calendar for the Week

Monday

• New York Fed one-year inflation expectations (3% prior)
• Earnings: Oracle (ORCL), Asana (ASAN), Vail Resorts (MTN)

Tuesday

• NFIB Small Business Optimism Index (101 expected, 102.8 prior)
• Earnings: Dick’s Sporting Goods (DKS), Casey’s (CASY), Kohl’s (KSS)

Wednesday

• Consumer Price Index (CPI), month-over-month (+0.3% expected, +0.5% prior)
• Core CPI, year-over-year (+3.2% expected, +3.3% prior)
• Mortgage applications (previously +20.4%)
• Earnings: Adobe (ADBE), American Eagle (AEO), iRobot (IRBT)

Thursday

• Producer Price Index (PPI), month-over-month (+0.3% expected, +0.4% prior)
• Initial jobless claims (221,000 prior)
• Earnings: DocuSign (DOCU), Ulta Beauty (ULTA), Dollar General (DG)

Friday

• University of Michigan Consumer Sentiment Index (63.9 expected, 64.7 prior)
• No notable earnings reports.

As economic data rolls in and markets navigate tariff uncertainty, investors will be closely monitoring developments to gauge the trajectory of inflation, interest rates, and economic growth.