Market Recap: Stocks Slightly Up Amid Tariff Warnings and Rate Cut Discussions

The S&P 500 Index ($SPX) (SPY) finished Wednesday’s trading session up +0.24%. Similarly, the Dow Jones Industrial Average ($DOWI) (DIA) saw an increase of +0.16%, while the Nasdaq 100 Index ($IUXX) (QQQ) edged up +0.05%. March E-mini S&P futures (ESH25) rose +0.13%, but March E-mini Nasdaq futures (NQH25) dipped -0.03%.

Stocks Recover After FOMC Minutes Release

Losses earlier in the day were moderated as the yield on the 10-year Treasury note decreased following the afternoon release of the Federal Open Market Committee (FOMC) minutes. The minutes suggested that the committee may pause rate cuts, as members debated slowing the ongoing reduction of the Fed’s balance sheet until an agreement on the debt ceiling is reached. Concerns have been raised that a prolonged debt ceiling standoff could disrupt the money market, especially if the Fed continues along its path of quantitative tightening.

Debt Ceiling Concerns Heighten as X-Date Approaches

The U.S. has already hit its debt ceiling and the Treasury has utilized over 70% of its extraordinary measures to avoid exceeding it. Goldman Sachs estimates that the “X-date,” the point when a debt ceiling raise is crucial, might fall in late Q2 or Q3 of 2025. If Congress does not act before then, the Treasury might default on some obligations, as it would be unable to borrow more and would face cash shortages. Such a default could have serious repercussions for the global financial system.

FOMC Minutes Reveal Rate Cut Pause

The minutes from the January 28-29 FOMC meeting showed that officials want more evidence of improving inflation before adjusting the federal funds rate. They maintained the current target range at 4.25%-4.50%, following a total reduction of 100 basis points in the latter half of 2024. Currently, the market anticipates an overall cut of -37 basis points by the end of 2025.

Market Reactions to Tariff Announcements

Initial stock declines were instigated by President Trump, who revealed plans for approximately 25% tariffs on U.S. imports from the auto, semiconductor, and pharmaceutical sectors, effective by April 2. This would follow a 25% tariff on steel and aluminum set to begin in March, along with calculations for reciprocal tariffs by April 1. Additional tariffs of 10% on imports from China and 25% on goods from Canada and Mexico have also been postponed until March 4, heightening market uncertainties.

Housing Market Shows Mixed Signals

In January, U.S. housing starts fell by -9.8% to 1.366 million, falling short of the expected decline to 1.390 million following a robust +16.1% increase in December, which had reached 1.515 million units. Conversely, building permits increased by +0.1% to 1.483 million, better than the anticipated drop to 1.460 million.

European Central Bank’s Stance on Rate Cuts

Isabel Schnabel, a member of the ECB Executive Board, indicated that the ECB may be close to pausing rate cuts. Officials are expected to discuss whether to remove language implying more cuts in an upcoming meeting, where another -25 basis point cut is anticipated.

Global Market Performance Show Mixed Results

Globally, stock markets had varied performances on Wednesday. The Euro Stoxx 50 fell by -1.31% in response to U.S. tariff threats, while China’s Shanghai Composite Index rose by +0.81%. Japan’s Nikkei Stock 225 decreased by -0.27%.

Interest Rates and Bond Markets

March 10-year T-notes (ZNH25) rose by +4 ticks, pushing the yield down by -1.8 basis points to 4.533%. Initial T-note prices faced pressure from news of tariffs but rebounded thanks to the FOMC minutes suggesting a potential slowdown in quantitative tightening. The market found additional support from the disappointing housing starts data.

In Europe, bond yields increased, with the 10-year German bund yield climbing +6.3 basis points to 2.557%, while the 10-year U.K. gilt yield rose +5.3 basis points to 4.611%. Swaps currently anticipate a 97% chance of a -25 basis point cut by the ECB in their March 6 policy meeting.

Notable U.S. Stock Movements

In the stock market, Analog Devices (ADI) jumped +9.74% following a stronger-than-expected earnings report, boosting sentiment across the chip sector. Microchip Technology (MCHP) saw a noteworthy gain of +9.90%. Other semiconductor stocks, including NXP Semiconductors (NXPI), ON Semiconductors (ON), and Texas Instruments (TXN), followed suit with gains between +5% and +7%.

In contrast, Intel (INTC) fell -6.10%, giving back a portion of the previous day’s impressive +16% surge fueled by rumors of possible deals involving TSMC and Broadcom. Meta Platforms (META) declined -1.76%, following a -2.56% drop the day before. Among the Magnificent Seven stocks, Nvidia (NVDA) and Amazon (AMZN) also closed lower. On a positive note, Tesla (TSLA) and Microsoft (MSFT) reported gains of +1.82% and +1.25%, respectively, with Apple (AAPL) and Alphabet (GOOG) closing higher as well.

Palantir Technologies (PLTR) dropped -10%, amid fears of reduced defense spending. Cadence Design Systems (CDNS) also fell -8.78% after providing disappointing management forecasts.

Arista Networks (ANET) lost over -6% due to unsatisfactory earnings results. Toll Brothers (TOL) reported revenue and unit home sales that missed market expectations, resulting in a decline of more than -5%. Other homebuilders like DR Horton (DHI) and KB Home (KBH) also fell by more than -2%, while Lennar (LEN) decreased by over -1% due to prevailing concerns over high mortgage rates. Etsy (ETSY) succumbed to a more than -10% decline following a sales miss.

Upcoming Earnings Reports

Investors should keep an eye on upcoming earnings reports from companies including EPAM Systems Inc (EPAM), Builders FirstSource Inc (BLDR), Quanta Services Inc (PWR), LKQ Corp (LKQ), Hasbro Inc (HAS), Targa Resources Corp (TRGP), CenterPoint Energy Inc (CNP), Baxter International Inc (BAX), Pool Corp (POOL), Walmart Inc (WMT), Southern Co/The (SO), Alliant Energy Corp (LNT), Booking Holdings Inc (BKNG), Newmont Corp (NEM), Insulet Corp (PODD), Consolidated Edison Inc (ED), VICI Properties Inc (VICI), Akamai Technologies Inc (AKAM), Live Nation Entertainment Inc (LYV), and Copart Inc (CPRT).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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