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Weekly Market Recap: Equities Decline Amid Trade Tensions and Fed's Cautious Stance Thumbnail

Weekly Market Recap: Equities Decline Amid Trade Tensions and Fed's Cautious Stance

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Market Overview

Markets initially climbed to fresh all-time highs but lost steam after President Trump announced additional tariffs on automobiles, semiconductors, and pharmaceuticals, set to take effect in April. However, details remained sparse, and the delayed implementation prevented an even sharper market reaction. Optimism around U.S.-Russia ceasefire discussions provided some support, but lackluster retail earnings from Walmart (WMT) and weaker consumer sentiment data weighed on stocks.

International equities had a mixed performance. European stocks finished slightly higher, with Switzerland and Italy leading, while the U.K., France, and Germany lagged. Central bank policy concerns resurfaced after ECB officials signaled caution on rate cuts, while U.K. labor market data dampened optimism for near-term easing by the Bank of England.

In Asia, Chinese tech stocks continued their rally, leading Hong Kong’s Hang Seng Index to another strong gain, supported by Alibaba’s earnings beat and AI investment commitments. Taiwan and South Korea also gained, while Japan dipped following hawkish Bank of Japan comments before a Friday policy reassurance stabilized sentiment.

Federal Reserve Insights & Economic Roundup

Bond yields moved higher as investors absorbed the latest Federal Reserve minutes, which reinforced a patient stance on rate cuts. The 10-year Treasury yield rose 0.51% to 4.43%, reflecting concerns about prolonged higher rates amid persistent inflation risks.

The FOMC minutes revealed that officials discussed adjusting quantitative tightening (QT) amid concerns over potential short-term funding market disruptions caused by ongoing debt ceiling discussions. The Treasury market remains sensitive to Federal Reserve balance sheet reductions, with policymakers emphasizing the need for flexibility in asset runoff plans.

Consumer sentiment weakened, with the University of Michigan’s final February reading missing expectations, as inflation expectations for the next five years ticked up to 3.5% from 3.3%. Additionally, flash PMIs (Purchasing Managers’ Index) for February showed weakness, with services slipping into contraction territory at 49.7, while manufacturing remained expansionary but below forecasts.

Retail earnings reinforced consumer struggles. Walmart (WMT) disappointed with lower-than-expected profit guidance, sparking fresh concerns over consumer spending power amid ongoing price sensitivity and economic uncertainty.

The Week Ahead

Markets will be focused on U.S. economic growth, inflation data, and housing trends. Key reports include:

  • Monday: Chicago Fed National Activity Index (Jan), Dallas Fed Manufacturing Activity (Feb)
  • Tuesday: House Price Index (Dec), S&P Case-Shiller 20-City Home Price Index (Dec), Conference Board Consumer Confidence (Feb)
  • Wednesday: MBA Mortgage Applications (Feb 21), New Home Sales (Jan), Final Building Permits Data (Jan)
  • Thursday: Q4 GDP second estimate, Core PCE Price Index (Q4 second reading), Durable Goods Orders (Jan), Jobless Claims (Feb 22), Pending Home Sales (Jan)
  • Friday: Personal Income and Spending (Jan), PCE Price Index (Jan), Core PCE Inflation (Jan), Advance Goods Trade Balance (Jan), MNI Chicago PMI (Feb)

Investors will pay close attention to core PCE inflation (the Fed’s preferred measure) and Q4 GDP revisions, as well as consumer confidence and housing market trends for signals on the economic outlook heading into Q2.