(Bloomberg) — Stocks got hit as traders grappled with a selloff in the market’s most-influential group, mixed economic data and tariff angst.
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Megacaps bore the brunt of the selling as good-but-not-great numbers from Nvidia Corp. disappointed investors. The chipmaker sank 7.4%. The dollar rose as Donald Trump said 25% tariffs on Canada and Mexico are on track to go into place March 4, and he’d impose an additional 10% tax on Chinese imports. The US president also sidestepped questions about providing an American “backstop” to any peacekeeping force in Ukraine.
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“Nvidia’s earnings were good, but they did not do a lot do lessen the growing fears that the earnings from the AI market will not be as strong as investors had been thinking, said Matt Maley at Miller Tabak + Co. “The quotes out of Washington, DC continue to create decent sized intraday moves in the markets.”
All the uneasiness around the actual impact of potential US tariffs on things like trade, the economy, inflation and even geopolitics kept Wall Street traders on their toes. And there was no major relief from Thursday’s big batch of economic data released in the run-up to a key inflation reading.
The US economy advanced at a healthy pace and inflation was more stubborn than initially estimated at the end of 2024. Gross domestic product increased at an unrevised 2.3% annualized pace in the fourth quarter. The primary growth engine — consumer spending — advanced at a 4.2% pace.
“Investors want lower rates from the Fed, but they don’t want to get there by seeing a notable deterioration in the underlying economy,” said Bret Kenwell at eToro. “At the very least, if the economy is going to slow, investors will want to see inflation slow down too.”
The S&P 500 lost 1.1%. The Nasdaq 100 fell 2.1%. The Dow Jones Industrial Average slid 0.2%. A Bloomberg gauge of the Magnificent Seven megacaps sank 2.3%. The Russell 2000 Index slipped 1.2%.
The yield on 10-year Treasuries rose two basis points to 4.28%. The Bloomberg Dollar Spot Index added 0.6%.
“As the last few days have shown us, we’re in an environment where what the market is doing right now is hardly indicative, no less a guarantee of where we’ll be an hour from now let alone the end of the day,” said Bespoke Investment Group strategists.
Pessimism among individual investors about the short-term outlook for stocks increased, according to the latest Sentiment Survey from the American Association of Individual Investors.
Bearish sentiment, expectations that stock prices will fall over the next six months, increased 20.2 percentage points to 60.6%. Bullish sentiment dropped to 19.4% while neutral sentiment decreased to 20%, the AAII survey showed.
“AAII data on investor sentiment showed both an extremely high level of bearishness and a rapid increase in that metric,” said Bespoke strategists. “Historically, high levels of bearishness tend to lead to strong returns, but these levels are unprecedented with stocks near recent highs.”
Bespoke also said that large spikes in bearishness during bull cycles have better precedent and more mixed implications for forward returns.
As some of the world’s largest companies report earnings, one topic is dominating the conversation: tariffs.
The topic has come up about 700 times during quarterly earnings calls for S&P 500 companies — a grouping of the world’s largest publicly traded businesses — according to a Bloomberg News analysis of transcripts.
That’s an all-time high in data going back to 2005 and slightly above the number seen in 2018, when President Trump first enacted tariffs.
“You do not only have uncertainty here in the United States, but you have a lot of uncertainty in terms of relationships with other countries, impact on markets,” said Dan Ivascyn at Pacific Investment Management Co. “And that’s creating not only a lot of localized volatility but volatility across countries, across sectors, across yield curves and that’s a great opportunity as well.”
Ivascyn thinks the key theme going into this year is to have a “healthy degree of humility around the uncertainty”.
“Acknowledge the uncertainty, but look to take advantage of the full global opportunity set, both within the liquid higher quality areas of the market, as well as in some of the more credit sensitive areas as well,” he noted.
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Traders also geared up for the Federal Reserve’s preferred inflation metric, which is expected to cool to the slowest pace since June, but glacial progress on taming price pressures overall will keep policymakers cautious about lowering interest rates further.
The core personal consumption expenditures price index — which excludes often-volatile food and energy costs — probably rose 2.6% in the year through January in Commerce Department data due on Friday. Overall PCE inflation likely eased on an annual basis as well, according to the median estimate in a Bloomberg survey of economists.
“Indications that price pressures may be catching a second wind even before the potential impact of additional tariffs should send a cautionary message about the near-term inflation outlook,” said Jim Baird at Plante Moran Financial Advisors.
Corporate Highlights:
Tesla Inc. is seeking approval to offer ride-hailing services in California, a key step by Elon Musk’s company to begin carrying paying customers while its traditional car-selling business falters.
Apollo Global Management Inc. is in talks to lead a roughly $35 billion financing package for Meta Platforms Inc. to help develop data centers in the US, according to people with knowledge of the matter.
Amazon.com Inc.’s cloud unit has built its first quantum-computing chip, joining a growing roster of technology companies showing off futuristic hardware.
Salesforce Inc. gave a fiscal-year revenue forecast that fell short of estimates, dimming optimism that the company’s new artificial intelligence product would spur faster sales growth.
B. Riley Financial Inc. lined up new funding to replace Nomura Holdings Inc., erasing what’s left of a loan tied to an ill-fated buyout deal that has hobbled the brokerage and investment firm.
Walgreens Boots Alliance Inc. rose after a report that a potential take-private deal from Sycamore Partners would lead to a breakup of the drugstore chain.
Paramount Global, the parent of CBS and MTV, reported fourth-quarter sales and profit that fell short of analysts’ expectations, as gains in streaming failed to offset declines in traditional TV.
Peanut butter and jelly maker JM Smucker Co. increased full-year profit guidance, offering a view that’s more optimistic than what Wall Street anticipated.
Snowflake Inc. projected better-than-expected revenue growth for the fiscal year, sending an optimistic signal about the adoption of its recently launched products for artificial intelligence.
Toronto-Dominion Bank beat estimates on better-than-expected wealth-management and capital-markets results, capping off an earnings season that saw all of Canada’s big banks benefit from higher trading activity.
Royal Bank of Canada beat estimates on higher results in its capital-markets and wealth-management divisions as both units benefited from strong markets.
Canadian Imperial Bank of Commerce came ahead of analyst expectations with gains across all segments, particularly with strength in the capital markets business.
Elliott Investment Management is ramping up pressure on BP Plc after its new strategy fell short of the activist investor’s expectations, people with knowledge of the matter said.
Key events this week:
Japan Tokyo CPI, industrial production, retail sales, Friday
US PCE inflation, income and spending, Friday
Fed’s Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
The S&P 500 fell 1.1% as of 3:37 p.m. New York time
The Nasdaq 100 fell 2.1%
The Dow Jones Industrial Average fell 0.2%
The MSCI World Index fell 1.1%
Bloomberg Magnificent 7 Total Return Index fell 2.3%
The Russell 2000 Index fell 1.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.6%
The euro fell 0.8% to $1.0403
The British pound fell 0.5% to $1.2609
The Japanese yen fell 0.5% to 149.78 per dollar
Cryptocurrencies
Bitcoin fell 1.9% to $82,846.17
Ether fell 3.1% to $2,268.65
Bonds
The yield on 10-year Treasuries advanced two basis points to 4.28%
Germany’s 10-year yield declined two basis points to 2.41%
Britain’s 10-year yield advanced one basis point to 4.51%
Commodities
West Texas Intermediate crude rose 2.3% to $70.23 a barrel
Spot gold fell 1.4% to $2,876.17 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee, Margaryta Kirakosian, John Viljoen and Divya Patil.
