Market Update: Stocks Drop Amid Mixed Earnings and Economic Data

The S&P 500 Index ($SPX) (SPY) ended Friday down -0.95%, while the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.99%, and the Nasdaq 100 Index ($IUXX) (QQQ) decreased by -1.30%. March E-mini S&P futures (ESH25) fell -0.90%, and March E-mini Nasdaq futures (NQH25) declined by -1.30%.

Economic Sentiment Takes a Hit

Stock indexes dropped after initially gaining traction early in the day. This shift followed the University of Michigan’s February consumer sentiment index, which surprisingly fell to a 7-month low, alongside a rise in inflation expectations. Compounding these issues, rising bond yields also pressured stocks. Increased bond yields were spurred by the unexpected decline in the US January unemployment rate to an 8-month low and a greater-than-expected rise in average hourly earnings, both of which suggest stricter monetary policy from the Federal Reserve. This led to declines in chip manufacturers and homebuilding sectors.

Political Influences on Market Confidence

Market losses intensified Friday afternoon after President Trump announced plans to unveil reciprocal tariffs on “everyone” next week, raising concerns without naming specific countries.

Corporate Earnings: A Mixed Bag

The report of corporate earnings on Friday showed mixed results. Amazon.com saw its stock drop over -4% after providing a weaker than expected outlook. Microchip Technology also declined more than -2% after projecting Q4 net sales below analyst expectations. Conversely, Expedia Group surged over +17% on strong Q4 earnings, while Take-Two Interactive Software gained more than +14% after increasing its full-year earnings forecast and reaffirming its plans to release Grand Theft Auto VI in fall 2025.

Labor Market Data Presents Contrasts

According to the data, US nonfarm payrolls for January rose by +143,000, falling short of the expected +175,000, although December’s numbers were revised up from +256,000 to +307,000. The January unemployment rate unexpectedly dropped by -0.1% to 4.0%, indicating a stronger job market than anticipated.

In other economic news, average hourly earnings in January climbed by +0.5% month-over-month and +4.1% year-over-year, surpassing economist forecasts of +0.3% and +3.8%, respectively. However, the University of Michigan’s February consumer sentiment index fell by -3.3 to a low of 67.8, contrasting expectations for an increase.

Concerns About Inflation

The University of Michigan’s US February one-year inflation expectations surged to a 15-month high of 4.3%, contrary to expectations of stability at 3.3%. Additionally, the February 5-10 inflation expectations increased to a 16-year high of 3.3%, exceeding the anticipated 3.2%.

In a notable development, US consumer credit jumped a record +$40.847 billion in December, significantly higher than the forecast of +$15.45 billion.

Statements from Federal Reserve Officials

Comments from Federal Reserve officials have offered mixed messages. Dallas Fed President Logan indicated that interest rates could be nearing a neutral level, potentially reducing the need for further cuts. In contrast, Minneapolis Fed President Kashkari expressed his expectation that inflation will eventually cool, facilitating modest interest rate cuts by year’s end.

Analyst Earnings Projections

As earnings season continues, analysts anticipate a +7.5% year-over-year growth in S&P 500 earnings for Q4, marking the second-highest forecast ahead of the season in the past three years. Currently, the markets assign a 10% probability to a -25 bp rate cut at the upcoming FOMC meeting on March 18-19.

International Market Reactions

Meanwhile, overseas markets displayed mixed results. The Euro Stoxx 50 closed down -0.58%, while China’s Shanghai Composite Index rose to a 5-week high, finishing up +1.01%. Japan’s Nikkei Stock 225 closed down -0.72%.

Interest Rates Overview

On Friday, March 10-year T-notes (ZNH25) fell by -11 ticks, causing the 10-year T-note yield to rise +4.9 bp to 4.483%. T-notes had a turbulent day, initially jumping following the smaller-than-expected rise in nonfarm payrolls, but later declining due to the positive job market data and rising inflation expectations.

European government bond yields saw a decline, with the 10-year German bund yield falling -0.7 bp to 2.372% and the 10-year UK gilt yield dropping -0.8 bp to 4.476%. In Germany, industrial production fell -2.4% month-over-month, underperforming expectations of a -0.7% decrease, marking the biggest drop in five months.

However, Germany’s trade data showed unexpected resilience, with December exports rising +2.9% month-over-month, outperforming projections of a -0.5% decline, while imports rose +2.1%, also exceeding expectations.

Stock Movers to Watch

In the US stock market, Amazon.com (AMZN) declined more than -4% after guiding Q1 net sales expectations lower than consensus. Homebuilding stocks also suffered due to rising T-note yields and poor consumer sentiment, with Toll Brothers (TOL) down more than -6% and DR Horton (DHI) down over -5%. Similar declines were observed in KB Home (KBH) and Lennar (LEN).

The chip sector struggled as Marvell Technology (MRVL) fell over -7%. Other notable declines included ARM Holdings Plc (ARM), Advanced Micro Devices (AMD), and Broadcom (AVGO), each dropping more than -2%.

Air Products & Chemicals (APD) fell more than -5% after receiving a downgrade from JPMorgan Chase. Elf Beauty (ELF) reported disappointing Q3 earnings and lowered its full-year forecast, leading to an impressive near -19% drop in share price. Nike (NKE) also saw a decline, dropping more than -4% following a downgrade by Citigroup.

Finally, BILL Holdings (BILL) reported a significant forecast miss, resulting in a drop of over -35%. Conversely, Expedia Group (EXPE) surged over +17% following strong earnings, making it a standout in the S&P 500.