The S&P 500 Index ($SPX) (SPY) closed down -3.46% on Thursday, while the Dow Jones Industrials Index ($DOWI) (DIA) fell -2.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) declined by -4.19%. June E-mini S&P futures (ESM25) are down -3.51%, and June E-mini Nasdaq futures (NQM25) have dropped -4.23%.

On Thursday, stock indexes fell sharply, reversing some of Wednesday’s substantial gains. Despite President Trump’s announcement of a 90-day pause on reciprocal tariffs for 56 countries, market participants remain uneasy about the broader implications of U.S. trade policies, as many tariffs initially imposed remain in effect. These tariffs have severely impacted consumer confidence and prompted numerous companies to halt their capital spending plans, which negatively influences GDP growth.

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Furthermore, the U.S.-China trade conflict has intensified after China retaliated by imposing 84% tariffs on U.S. goods, while the U.S. raised total tariffs on Chinese imports to 145% from 104%. On a somewhat encouraging note, the European Union announced on Thursday a 90-day suspension of its retaliatory tariffs on U.S. goods, which were initially declared earlier in the week.

Economic Indicators Provide Mixed Signals

Despite the market downturn, Thursday’s economic data showed aspects that could support stocks, particularly a slowdown in inflation and ongoing strength in the labor market. The March Consumer Price Index (CPI) excluding food and energy showed a lesser-than-expected increase, rising at the slowest pace in four years. Additionally, the U.S. labor market remains resilient, with weekly jobless claims aligning with forecasts.

Initial unemployment claims rose by +4,000 to a total of 223,000, meeting expectations. Conversely, continuing claims dropped by -43,000 to 1.850 million, indicating a stronger labor market compared to the anticipated figure of 1.886 million.

The March CPI showed a year-over-year increase of +2.4%, lower than the anticipated +2.5%, marking the smallest rise in half a year. The CPI excluding food and energy rose by +2.8% year-over-year, again below the expected +3.0% and the weakest growth in four years.

Federal Reserve Commentary Impacts Market Sentiment

Comments from Federal Reserve officials on Thursday influenced market sentiment negatively. Kansas City Fed President Schmid emphasized the need to focus on controlling inflation if forced to balance it with the goal of full employment. Similarly, Dallas Fed President Logan highlighted the importance of preventing tariff-related price increases from leading to persistent inflation.

Concerns about global economic prospects were heightened by signs of deflation in China, which reported a year-over-year CPI decline of -0.1%, contrary to predictions of no change. Additionally, the Producer Price Index (PPI) fell -2.5% year-over-year against expectations of -2.3%.

On Wednesday, President Trump revealed a 90-day pause on higher reciprocal tariffs affecting 56 nations but kept a 10% baseline tariff applicable to nearly all countries. The EU, in a similar move, announced it would delay the implementation of 25% tariffs on €21 billion worth of U.S. goods for 90 days.

Market pressures have intensified in the past month, driven by fears that U.S. tariffs will negatively affect economic growth and corporate earnings. Notably, on March 4, President Trump imposed 25% tariffs on imports from Canada and Mexico and increased tariffs on Chinese goods from 10% to 20%. Furthermore, he implemented a 25% tariff on U.S. auto imports, initially targeting complete foreign vehicles and expanding to automobile parts by May 3. Trump labeled these tariffs as “permanent” without any inclination for negotiation. A 10% baseline tariff for most nations took effect last Saturday.

The markets currently estimate a 32% probability of a -25 basis point rate cut at the upcoming May 6-7 FOMC meeting, slightly down from 30% a week prior.

Looking Ahead: Earnings Season and Economic Data

The focus of market attention this week is on U.S. trade policies, as Friday will see the release of the final-demand PPI for March, expected to rise to +3.3% year-over-year from +3.2% in February. The March PPI ex-food and energy is anticipated to increase to +3.6% year-over-year from +3.4% in February. Additionally, the University of Michigan’s consumer sentiment index for April is projected to decline to 54.0 from 57.0 in March.

Q1 earnings reporting season kicks off on Friday as major U.S. banks publish their results. According to data compiled by Bloomberg Intelligence, the market consensus anticipates Q1 year-over-year earnings growth of +6.7% for the S&P 500, a decrease from expectations of +11.1% back in early November. Projections for full-year 2025 corporate profits for the S&P 500 have also been revised down to +9.4% from +12.5% predicted in early January.

Meanwhile, global stock markets displayed gains on Thursday, with the Euro Stoxx 50 up +4.26%. China’s Shanghai Composite Index rose +1.16%, and Japan’s Nikkei 225 achieved a sharp increase of +9.13%.

Interest Rates and Bond Markets

In bond markets, June 10-year T-notes (ZNM25) posted gains on Thursday, closing up +8.5 ticks. The yield on the 10-year T-note rose +1.3 basis points to 4.374%. Thursday’s gains in T-notes were supported by speculation that President Trump’s announcement would mitigate the temptation for some foreign investors to liquidate dollars, stocks, and Treasury securities. Additionally, the slower-than-expected growth in U.S. consumer prices was bullish for T-notes, while the stock slump heightened safe-haven demand for these securities. A strong demand for the Treasury’s $22 billion 30-year T-bond auction resulted in a favorable bid-to-cover ratio of 2.43, slightly above the average of 2.42 from the last ten auctions.

In European markets, bond yields decreased, with the 10-year German bund yield dropping -1.1 basis points to 2.580%. The 10-year UK gilt yield fell -13.6 basis points to 4.643%.

Market swaps indicate a 90% probability of a -25 basis point rate cut by the European Central Bank (ECB) at the upcoming April 17 policy meeting.

Market Movers: Big Tech and Chip Manufacturers Under Pressure

Moreover, the “Magnificent Seven” stocks faced significant declines on Thursday, contributing to the broader market downturn. Tesla (TSLA) saw a drop of more than -7%, while Meta Platforms (META) fell over -6%. Nvidia (NVDA) and Amazon.com (AMZN) experienced declines of more than -5%, and Apple (AAPL) dropped over -4%. Other notable declines included Alphabet (GOOGL) down more than -3% and Microsoft (MSFT) down more than -2%.

The semiconductor industry also retreated, impacting overall market performance. Microchip Technology led the Nasdaq 100 decliners, closing down more than -13%, with Marvell Technology (MRVL) also falling over -13%. ON Semiconductor (ON) and NXP Semiconductors NV (NXPI) both dropped more than -10%, while Micron Technology (MU) and Analog Devices (ADI) also posted significant losses.