Stocks Fall as Trade War Clouds Economic Outlook: Markets Wrap

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Just days before the end of a quarter that’s set to be the worst for the S&P 500 since 2023, the gauge slipped anew. Giants from Toyota Motor Corp. to Mercedes-Benz Group AG and General Motors Co. got hit. AppLovin Corp. sank on a short report from Muddy Waters. Megacaps were mixed, with Apple Inc. up and Nvidia Corp. down. In late hours, Lululemon Athletica Inc. gave a gloomy outlook. Bonds flashed concerns about inflation as short-dated Treasuries outperformed longer ones.

President Donald Trump signed a proclamation to implement a 25% tariff on auto imports and pledged harsher punishment on the EU and Canada if they join forces against the US. The move overshadowed data showing the economy expanded at a quicker pace in the fourth quarter than previously estimated. A measure of inflation was revised lower.

To Bret Kenwell at eToro, the data won’t act as a major confidence boost for investors as their focus is firmly planted in the current economic landscape rather than the one from a few months ago.

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“Investors will want to see in-line or better inflation results and a strong employment number to gain some reassurance,” he said.

Inflation remains at a disquieting level for the Federal Reserve. And Friday’s personal consumption expenditures price index is forecast to show signs of stickiness.

The S&P 500 lost 0.3%. The Nasdaq 100 fell 0.6%. The Dow Jones Industrial Average slid 0.4%.

The yield on 10-year Treasuries rose one basis point to 4.36%. The dollar wavered.

Friday’s inflation data will provide a snapshot of price pressures and economic activity leading up to Trump’s planned April 2 announcement on reciprocal tariffs — which he has dubbed “Liberation Day in America.”

General uncertainty about the impact of the duties help explain why Fed officials kept interest rates unchanged last week.

“The threat of further tariff escalation remains a key concern, but our economic forecasts do not call for a recession in the US,” said Mark Haefele at UBS Global Wealth Management.

US PREVIEW: Inflation Uptick to Justify Fed’s Rate Hold

For markets, the question is whether anything will be able to rise above the tariff noise, according to Chris Larkin at E*Trade from Morgan Stanley.

“In the near-term, the most likely scenario is more choppy trading, he said.

To Craig Johnson at Piper Sandler, despite the heightened uncertainties surrounding tariffs and inflation, there are technical signals suggesting an intermediate-term low may be in place.

“While the path to a more meaningful recovery is often not a straight line upward, it appears that equities have found some footing off the March lows from which to build upon in the upcoming weeks,” he said.

Pessimism among individual investors about the short-term outlook for stocks decreased in the latest sentiment survey from the American Association of Individual Investors. Meanwhile, optimism and neutral sentiment increased.

“With stocks getting a respite from the selling last week and into early this week, we expected some subsiding of the extremely high levels of bearish sentiment in the weekly survey from the AAII,” said Bespoke Investment Group strategists.

Bespoke noted that while bearish sentiment dropped, this week’s reading was still above 50% — and higher than 96.8% of all prior weekly readings since 1987.

US equities will soon regain their long-held edge over European peers as the brighter outlook for the old continent’s stocks is limited to sectors such as defense and banks, according to Jean Boivin, head of the BlackRock Investment Institute.

“This is a pretty narrow European story,” Boivin said in an interview. “There’s no strong conviction yet to play Europe over the US over a six-to-12 month horizon. We need to see more fiscal impetus beyond defense and implementation will be key.”

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