Mixed Market Response Amid New Tariffs and Economic Data

The S&P 500 Index ($SPX) (SPY) closed down -0.33% on Thursday, while the Dow Jones Industrials Index ($DOWI) (DIA) dipped -0.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) saw a more significant decline of -0.59%. Additionally, June E-mini S&P futures (ESM25) edged down -0.32%, and June E-mini Nasdaq futures (NQM25) fell by -0.61%.

On Thursday, stock indexes partially recovered from earlier losses, settling in a mixed manner. The market faced pressure due to President Trump’s announcement of new tariffs, which raised concerns about economic growth and inflation. Late Wednesday, Trump signed a proclamation to impose a 25% tariff on US auto imports effective April 3. The tariffs will initially target vehicles fully assembled outside the US and will expand to include automobile parts made outside the US by May 3. Trump emphasized that these tariffs would be “permanent” and expressed no interest in negotiating exceptions.

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However, stocks managed to recover from their lowest levels after several megacap technology stocks experienced rebounds, along with positive economic indicators that helped offset worries about US trade policies. Notable gains included Apple closing up over +1% and Tesla up +0.39%, leading the tech sector’s recovery. Furthermore, the US Q4 GDP was revised upward, initial unemployment claims unexpectedly fell, and February pending home sales exceeded expectations.

The US Q4 GDP growth was revised slightly higher to +2.4% (quarter-over-quarter annualized), surpassing the expected no change at +2.3%. Meanwhile, personal consumption for Q4 was revised down to +4.0% from +4.2%, and the core price index was adjusted down to +2.6% from +2.7%.

In another encouraging sign, weekly unemployment claims fell by 1,000 to 224,000, indicating a stronger labor market than the anticipated increase to 225,000. Additionally, February pending home sales rose by +2.0% month-over-month, beating forecasts of +1.0%.

Upcoming Economic Indicators and Geopolitical Concerns

Market participants will closely watch Friday’s report on February personal spending, expected to rise by +0.5% month-over-month, along with February personal income, forecasted to increase by +0.4% month-over-month. The February core PCE price index, which the Federal Reserve prefers as an inflation measure, is anticipated to rise +0.3% month-over-month and +2.7% year-over-year. Finally, the revised March University of Michigan consumer sentiment index is expected to remain unchanged at 57.9.

In addition, heightened geopolitical tensions in the Middle East pose further downside risk for markets. Israel has resumed airstrikes on Gaza, ending a ceasefire with Hamas, while Prime Minister Netanyahu announced plans to intensify military actions. Israel is also deploying troops in Syria under its new defense doctrine, and the US continues its strikes against Yemen’s Houthi rebels, who have vowed to retaliate against US vessels.

Fear of weakened economic growth due to US tariffs has pressured markets over the past three weeks. On March 4, Trump initiated 25% tariffs on Canadian and Mexican goods and increased tariffs on Chinese goods from 10% to 20%. On March 8, he reiterated intentions to impose additional tariffs on foreign nations on April 2.

Currently, the market is projecting a 16% probability of a -25 basis point rate cut following the May 6-7 FOMC meeting.

International Markets and Bond Yields

Overseas stock markets closed with mixed results on Thursday. The Euro Stoxx 50 fell to a one-and-a-half-week low, decreasing by -0.57%, while China’s Shanghai Composite Index rose slightly by +0.15%. Japan’s Nikkei 225 also fell, closing down -0.60% to another one-and-a-half-week low.

In the bond market, June 10-year T-notes (ZNM25) closed down -4.5 ticks, with the 10-year T-note yield climbing +1.9 basis points to 4.371%. Overall, T-notes saw declines to a one-month low amid fears of increased inflation following Trump’s tariffs. The 10-year breakeven inflation rate surged to a one-month high of 2.405%. Nonetheless, T-notes found some support after revisions lowered the Q4 core price index to +2.6% from +2.7%. Furthermore, demand was decent for the Treasury’s $44 billion 7-year T-note auction, achieving a bid-to-cover ratio of 2.53, matching the average from the previous 10 auctions.

European bond yields exhibited mixed movements. The 10-year German bund yield fell to a three-week low of 2.743%, concluding down -2.2 basis points at 2.773%. Meanwhile, the UK gilt yield reached a one-and-a-half month high at 4.809%, finishing up +5.5 basis points to 4.783%.

The Eurozone’s February M4 money supply increased by +4.0% year-over-year, surpassing expectations of +3.8% and marking the fastest increase in over two years. ECB Governing Council member Wunsch suggested that the ECB should consider stabilizing interest rates at its next meeting due to complications arising from US trade policies. Swaps are currently pricing in a 75% chance of a -25 basis point rate cut by the ECB at its April 17 policy meeting.

Sector Performance and Notable Movers

US automakers and auto part manufacturers faced significant declines on Thursday following Trump’s new tariffs. General Motors (GM) dropped over -7%, becoming one of the day’s biggest losers within the S&P 500. Other notable declines included BorgWarner (BWA) down more than -4%, and both Autoliv (ALV) and Ford Motor (F) down more than -3%. Stellantis NV (STLA) also closed nearly -1% lower.

Contrarily, Tesla (TSLA) bucked the negative trend, finishing up +0.39%.

Chip manufacturers experienced selling pressure that weighed on the broader market. Advanced Micro Devices (AMD) fell over -3% after Jeffries downgraded the stock from buy to hold. Additionally, Broadcom (AVGO) also closed down more than -3%, while multiple others, including Nvidia (NVDA) and Texas Instruments (TXN), experienced declines exceeding -2%.

In a contrasting trend, auto parts retailers and used car retailers saw gains on speculation that the new tariffs might encourage consumers to maintain and repair existing vehicles instead of buying new ones. AutoZone (AZO) climbed over +4%, while O’Reilly Automotive (ORLY) rose over +3% to lead the Nasdaq 100 gainers. CarMax (KMX) also gained more than +2%.

Rental car companies surged on expectations that the 25% tariffs on US auto imports would elevate used car prices, benefiting rental operations that eventually sell used vehicles from their fleets.