Market Overview: Stocks Recover as Inflation Slows

The S&P 500 Index ($SPX) (SPY) is up +0.79% today, while the Dow Jones Industrials Index ($DOWI) (DIA) shows a minor decline of -0.02%. The Nasdaq 100 Index ($IUXX) (QQQ) gained +1.54%. Additionally, March E-mini S&P futures (ESH25) are up +0.82%, and March E-mini Nasdaq futures (NQH25) rose +1.46%.

Moderate gains in stock indexes today are a response to recent downturns. A slower-than-expected rate of inflation contributed to the upward momentum. The US February Consumer Price Index (CPI) showed an increase of less than anticipated, which helped bolster market sentiment. Moreover, strength in the so-called Magnificent Seven stocks and a rally in semiconductor stocks underpin the broader market gains, although Verizon Communications’ decline of more than -4% negatively affected the Dow Jones Industrials.

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Stocks received an additional lift after President Trump decided late Tuesday against doubling tariffs on Canadian steel and aluminum. However, the European Union retaliated today by imposing tariffs on up to $28.3 billion worth of US goods, impacting sectors such as soybeans, beef, and poultry.

In February, the US CPI rose by +0.2% month-over-month (m/m) and +2.8% year-over-year (y/y), falling short of expectations of +0.3% m/m and +2.9% y/y. The CPI excluding food and energy also rose +0.2% m/m and +3.1% y/y, lower than predictions of +0.3% m/m and +3.2% y/y, marking the smallest year-over-year increase in the last three and three-quarters years.

In the mortgage sector, applications rose by +11.2% for the week ending March 7, with purchases and refinancing up +7.0% and +16.2%, respectively. The average 30-year fixed mortgage rate decreased -6 basis points to a three-month low of 6.67% from 6.73% last week.

Recent stock market pressures stem from worries that US tariffs might dampen economic growth and corporate earnings. Last Tuesday, President Trump enforced 25% tariffs on imports from Canada and Mexico, while raising the tariff on Chinese goods to 20% from 10%. He, however, granted a one-month exemption for US automakers and goods from Canada and Mexico compliant with the US-Mexico-Canada Agreement (USMCA). Trump reiterated plans to impose reciprocal tariffs on foreign nations by April 2.

Focus on Trade Policies and Economic Indicators

This week’s market focus remains on US trade policies, as 25% tariffs on imports of steel and aluminum are set to take effect. Thursday’s final-demand Producer Price Index (PPI) for February is projected to ease to +3.2% y/y, down from +3.5% y/y in January. Additionally, Friday is expected to yield a decline in the University of Michigan’s March consumer sentiment index to a reading of 63.5. There’s also anticipation surrounding Congress’s ability to pass a spending bill to prevent a government shutdown ahead of the March 15 deadline.

Market expectations currently suggest only a 1% chance of a -25 basis point rate cut at the Federal Open Market Committee (FOMC) meeting scheduled for March 18-19.

Globally, stock markets are mixed. The Euro Stoxx 50 increased by +1.28%. China’s Shanghai Composite Index fell -0.23% after reaching a 2.25-month high, while Japan’s Nikkei 225 closed up +0.07%.

Interest Rates Analysis

Today, June 10-year T-notes (ZNM25) are down -7 ticks, with the 10-year T-note yield rising +3.6 basis points to 4.316%. T-notes face downward pressure due to a decline in German bunds, as well as reduced demand stemming from the stock market rebound. Supply pressures loom as the Treasury plans to auction $39 billion in 10-year T-notes today as part of a larger $119 billion auction package this week. T-notes briefly increased following the announcement of lower-than-expected CPI data, seen as dovish for Fed policy.

In Europe, bond yields are generally rising. The yield on the 10-year German bund reached a 16-month high of 2.940%, increasing by +1.4 basis points to 2.911%. The 10-year UK gilt yield increased by +4.8 basis points to 4.723%.

ECB President Christine Lagarde indicated that shifts in global trade and increased Eurozone defense spending will challenge efforts to maintain stable inflation. Additionally, ECB Governing Council member Centeno expressed a preference for prompt action on interest rate reductions, suggesting a need for movement sooner rather than later. Market swaps indicate about a 43% probability for a -25 basis point rate cut from the ECB at the upcoming policy meeting on April 17.

US Stock Movers

The Magnificent Seven stocks are gaining, enhancing overall market strength. Tesla (TSLA) is up more than +7%, while Nvidia (NVDA) follows with an increase of over +6%. Other gainers in the Dow include Meta Platforms (META) up more than +4%, Amazon.com (AMZN) and Alphabet (GOOGL) both rising over +1%, and Microsoft (MSFT) increasing by +0.41%.

Intel (INTC) surged over +4% following reports that Taiwan Semiconductor Manufacturing Co. approached major companies about a stake in a joint venture involving Intel’s factories.

A rally in chip stocks continues, with Micron Technology (MU) up more than +6% and ARM Holdings Plc (ARM) rising over +5%. Other notable increases include Broadcom (AVGO), Marvell Technology (MRVL), and Lam Research (LRCX), all up more than +4%, alongside Advanced Micro Devices (AMD), Applied Materials (AMAT), and KLA Corp (KLAC), climbing over +2%.

Groupon (GRPN) reported a notable rise of more than +29% after predicting full-year revenue between $493 million and $500 million, surpassing consensus estimates of $491.3 million.

Talen Energy (TLN) saw its shares increase by over +8% after Morgan Stanley initiated coverage with an overweight recommendation and a price target of $243. Myriad Genetics (MYGN) rose by over +10% after Piper Sandler upgraded its rating from neutral to overweight, setting a price target of $12.50. Crocs Inc. (CROX) gained over +2% following a buy upgrade from Loop Capital Markets, with a price target of $110.

Conversely, airline stocks declined today, led by a -4% drop in United Airlines Holdings (UAL) after TD Cowen reduced its price target for the stock from $165 to $150. American Airlines Group (AAL) is down over -3%, while Delta Airlines (DAL) and Southwest Airlines (LUV) lost more than -2%.

iRobot (IRBT) experienced a significant decline of more than -37% after reporting Q4 revenue of $172 million, missing consensus expectations of $181 million.

Verizon Communications (VZ) fell more than -4%, weighing on the Dow Jones Industrials, following a downgrade by Wolfe Research from outperform to peer perform. Charter Communications (CHTR) also dropped over -4%, alongside AT&T (T), which is down more than -3%.

Stellantis NV (STLA) is down over -3% after being double-downgraded by Pekao Investment Banking, which set a price target of $11.47. PepsiCo (PEP) declined over -2% after being downgraded to hold from buy by Jefferies, which noted limited upside at the current price.

Upcoming Earnings Reports

Upcoming earnings reports include Adobe Inc (ADBE), Crown Castle Inc (CCI), SentinelOne Inc (S), and UiPath Inc (PATH).

On the date of publication, Rich Asplund did not hold positions in any securities mentioned in this article. All information and data are intended for informational purposes only. Please view the Barchart Disclosure Policy for further details.

The views and opinions expressed herein are those of the author and may not reflect the views of Nasdaq, Inc.