Stocks Slide as Tariff Angst Adds to Price Worries: Markets Wrap

This content was published on February 7, 2025 - 22:19

8 minutes

(Bloomberg) — Wall Street traders worried about the potential impacts of US tariffs on inflation didn’t get much relief from economic data that only underscored concerns over price pressures, reinforcing speculation the Federal Reserve will be in no rush to cut interest rates.

Stocks erased this week’s gains, with the S&P 500 down about 1%. President Donald Trump said he will announce reciprocal levies next week in an escalation of his trade war. United States Steel Corp. sank as he indicated Nippon Steel Corp. is considering investing in the company instead of an outright purchase. Equities came under pressure after data showed a slide in consumer sentiment amid concern over inflation. Mixed jobs figures highlighted a moderating — yet healthy — labor market, and a jump in wages. Bonds fell. Megacaps slid amid a disappointing outlook from Amazon.com Inc.

The latest economic readings help explain why policymakers have signaled they aren’t in a hurry to lower borrowing costs after three rate cuts last year. While traders are still betting the next move will be a reduction, they are only fully pricing one in September.

“The broader picture is still one of labor market resilience and sustained wage pressures,” said Seema Shah at Principal Asset Management. “This simply gives the Fed little reason to cut policy rates immediately.”

The Nasdaq 100 lost 1.3%. The Dow Jones Industrial Average slid 1%. A gauge of the “Magnificent Seven” megacaps sank 2%. The Russell 2000 dropped 1.2%. Amazon tumbled about 4%. Roblox Corp. is part of an active investigation by the US Securities and Exchange Commission, according to information obtained by Bloomberg News.

The yield on 10-year Treasuries advanced five basis points to 4.49%. The Bloomberg Dollar Spot Index rose 0.2%.

Nonfarm payrolls increased by 143,000 last month after upward revisions to the prior two months. Other revisions only carried out once a year weren’t as severe as once thought — job gains averaged 166,000 a month last year, a slowdown from the initially reported 186,000 pace.

The unemployment rate was 4.0% — the survey used to produce the number incorporated separate revisions to reflect a new population estimate at the start of the year, which makes the figure incomparable to prior months. Meantime, hourly wages climbed 0.5%.

“Strong wage growth is good for workers and should be viewed as a positive for consumer spending,” said Bret Kenwell at eToro. “However, Wall Street has watched this gauge closely over the last few years, worrying that too strong of wage growth could push inflation higher.”

Outside of the headline result, the latest jobs report is not cause for alarm, he said.

“While some investors may worry about implications for inflation or rate cuts, make no mistake about it: It’s better to have a strong economy and labor market than a deteriorating environment. Remember, stocks tend to do well amid mild inflation,” Kenwell concluded.

To Neil Dutta at Renaissance Macro Research, the fixed-income reaction to the data is an opportunity to go long the asset class.

“Ultimately, the Fed will need to cut rates because too many things don’t work with rates up this high,” Dutta said. “Looking at the data itself, cyclical areas of the labor market are sluggish. Goods producing employment is soft and total hours in the manufacturing sector fell.”

Yet Dutta also notes that the low level of unemployment likely keeps the Fed on the sidelines.

“The Fed is not in a forgiving mood right now,” he said. “ They are looking for reasons to wait and today’s report gives them one.”

Fed Governor Adriana Kugler said it’s appropriate to keep the Fed’s benchmark interest rate where it is for some time, given a stable labor market, limited progress on inflation in recent months and uncertainty over the outlook for fiscal and trade policy. Meantime, Minneapolis Fed President Neel Kashkari told CNBC he expects inflation will continue to cool toward the 2% target, allowing policymakers to lower interest rates “modestly” by the end of the year.

Lindsay Rosner at Goldman Sachs Asset Management says the Fed is likely to be cautious about reading too much into today’s report.

“Either way you spin it, the Fed should feel quite cozy sitting tight the rest of winter knowing that it was the right decision to hit the pause button on rate cuts,” said Charlie Ripley at Allianz Investment Management.

The Fed has already been pushing out expectations for its next rate cut, and this jobs report probably justifies that approach — if not nudging them to push out expectations even further, according to Jason Pride at Glenmede.

“The Federal Reserve has another round of inflation and employment data to mull before the next scheduled announcement on March 19,” said Mark Hamrick at Bankrate. “It is seen remaining patient before making another interest rate move having recently opted to stand pat.”

In the week ahead, the US January consumer price index report is likely to prove a mixed bag for the inflation-fighting Fed, while retail sales probably slowed, according to Bloomberg Economics.

“Core CPI has surprised to the upside in January in 13 of the last 14 years, with yields rising in 6 out of last 7 Februarys,” said Guneet Dhingra at BNP Paribas. “However, this year we could see an asymmetry towards lower yields – an upside print might be seen as a ‘usual’ January distortion, but a downside print is seen as good news.”

Corporate Highlights:

Amazon.com Inc. warned investors that it could face capacity constraints in its cloud computing division despite plans to invest some $100 billion this year, with most of the money going toward data centers, homegrown chips and other equipment to provide artificial intelligence services.
Apple Inc. plans to unveil a long-anticipated overhaul of the iPhone SE in the coming days, a move that will modernize its lower-cost model in a bid to spur growth and entice consumers to switch from other brands.
Pinterest Inc. posted strong holiday-quarter revenue and gave an upbeat forecast for sales in the current period, a sign that its advertising business continues to grow despite increased competition from much larger rivals in the social networking space.
Cloudflare Inc., a software company, reported fourth-quarter results that beat expectations.
Expedia Group Inc. posted better-than-expected gross bookings in the final months of 2024, reflecting resilient demand for travel during the winter holiday season.
Nikola Corp. is exploring a possible bankruptcy filing, according to people familiar with the matter, following a tumultuous period in which the electric truck maker has swung between stock-market darling and scandal-plagued enterprise.

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