U.S. Stock Market Faces Pressure Amid Trade and Economic Concerns

The S&P 500 Index ($SPX) (SPY) closed down -1.12% on Wednesday. The Dow Jones Industrials Index ($DOWI) (DIA) finished down -0.31%, while the Nasdaq 100 Index ($IUXX) (QQQ) dropped -1.83%. In futures trading, June E-mini S&P futures (ESM25) decreased -1.21%, and June E-mini Nasdaq futures (NQM25) fell -1.88%.

Concerns over U.S. trade policies are weighing heavily on the market. Investors are apprehensive that these policies could disrupt economic growth and heighten inflation. The uncertainty surrounding tariff implementation is notable, especially with President Trump’s upcoming April 2 deadline for new reciprocal tariffs. This anxiety intensified when President Trump announced plans to impose tariffs on the auto industry just after market close.

Impact of Trade Policy on Market Sentiment

Weakness in the Magnificent Seven stocks and semiconductor makers further contributed to market losses on Wednesday. In addition, the unexpected decline in U.S. February core capital goods orders fueled investor concern. Conversely, energy stocks are experiencing gains, with WTI crude prices rising over +1% to reach a three-week high.

Earlier in the week, stocks had rallied amid indications that the proposed tariffs may be more narrowly focused than anticipated, with President Trump suggesting a tendency towards leniency.

Mortgage Data and Economic Indicators

In the housing market, U.S. MBA mortgage applications fell by -2.0% for the week ending March 21. The purchase mortgage sub-index rose +0.7%, though the refinancing mortgage sub-index dropped -5.3%. The average 30-year fixed mortgage rate decreased by 1 basis point to 6.71%, down from 6.72% last week.

February’s non-defense capital goods new orders dipped -0.3% month-over-month, diverging from forecasts of a +0.2% increase and marking the largest decline in seven months. The markets remain cautious regarding potential reductions in U.S. corporate capital expenditures due to ongoing trade uncertainties.

Federal Reserve’s Stance on Interest Rates

The hawkish comments from Federal Reserve officials on Wednesday contributed to downward pressure on both stocks and bonds. Chicago Fed President Goolsbee remarked that the Fed may not maintain its previously favorable trajectory and could delay further rate cuts amidst rising economic uncertainties. Additionally, Minneapolis Fed President Kashkari stated that inflation remains above the 2% target, citing work still remains to be done, yet anticipates interest rate reductions over the next couple of years as price pressures subside. St. Louis Fed President Musalem expressed concerns that potential inflation from tariffs might not be temporary, suggesting that interest rates may need to stay elevated longer.

Attention now turns to Thursday’s Q4 GDP report, projected to remain at +2.3% (quarter-over-quarter annualized). March pending home sales are expected to rise +1.0% month-over-month. The Friday data forecast includes February personal spending anticipated at +0.5% month-over-month and personal income at +0.4% month-over-month. Moreover, February’s core PCE price index, the Fed’s preferred gauge for inflation, is expected to rise +0.3% month-over-month and +2.7% year-over-year. The March University of Michigan consumer sentiment index is predicted to hold steady at 57.9.

Geopolitical Tensions and Market Pressure

Increasing geopolitical risks in the Middle East are also impacting stock performance. Israel has resumed airstrikes in Gaza, breaking a two-month truce with Hamas. Israeli Prime Minister Netanyahu has vowed to enhance military strength in efforts to release hostages and neutralize Hamas. Meanwhile, U.S. military actions continue against Yemen’s Houthi rebels, with Defense Secretary Hegseth warning of ongoing strikes until the rebel attacks on vessels in the Red Sea cease.

Concerns regarding U.S. tariffs have been pressuring stock performance recently, with fears that they could hinder economic growth and corporate earnings. On March 4, President Trump implemented 25% tariffs on Canadian and Mexican goods and raised the tariff on Chinese goods from 10% to 20%. Subsequent announcements regarding reciprocal tariffs are expected on April 2.

The market currently estimates an 18% probability of a -25 basis point rate cut following the May 6-7 FOMC meeting.

International Market Overview

Overseas stock markets showed mixed results on Wednesday. The Euro Stoxx 50 declined by -1.16%. China’s Shanghai Composite Index edged down -0.04%, while Japan’s Nikkei 225 reached a three-and-a-half-week high, closing up +0.65%.

Bond Market Updates

June 10-year T-notes (ZNM25) closed down -6 ticks, with the 10-year T-note yield rising +2.1 basis points to 4.336%. T-notes faced pressure due to hawkish comments from Fed officials, who warned that U.S. trade policies could fuel inflation and maintain interest rates at their current levels longer. Rising inflation expectations exerted downward pressure on T-notes, reflected in the 10-year breakeven inflation rate reaching a three-week high of 2.377%. Concerns over a weak demand from Treasury’s recent $70 billion auction of 5-year T-notes, which yielded a bid-to-cover ratio of 2.33 (below the 10-auction average of 2.39), added to the pressure.

European bond yields generally fell on Wednesday, with Germany’s 10-year bund yield down -0.3 basis points to 2.795% and the 10-year UK gilt yield decreased -2.5 basis points to 4.728%.

Inflation Data from the UK and ECB Perspectives

In the UK, February CPI rose +2.8% year-over-year, falling short of the +3.0% expectation. Core CPI for February increased +3.5% year-over-year, also below the anticipated +3.6% rise. ECB Governing Council member Villeroy de Galhau indicated that the ECB could still implement rate cuts, stating progress towards the 2% inflation goal. Conversely, fellow ECB member Holzmann cautioned that increases in defense spending and U.S. trade policies could pressure consumer prices, suggesting he would not support interest rate cuts in the near future.

The ECB’s rate cut probability is currently estimated at 76% leading up to the April 17 policy meeting.

U.S. Stock Movers

Weak performance among Magnificent Seven stocks weighed heavily on the market. Tesla (TSLA) closed down over -5%, while Alphabet (GOOGL) fell more than -3%. Amazon.com (AMZN) and Meta Platforms (META) both declined by over -2%, and Microsoft (MSFT) and Apple (AAPL) dropped more than -1% each.

Nvidia (NVDA) led the Dow Jones Industrials with losses exceeding -5%, following reports that China’s National Development and Reform Commission advised against using Nvidia’s H20 chips in new data centers, which do not meet stringent requirements. Overall, chip manufacturers faced a challenging day, with ARM Holdings Plc (ARM) declining more than -7% and Marvell Technology also experiencing significant downturns.