As tariff talk slows, U.S. markets find some stability
U.S. equity markets stopped a four-week losing streak last week as what had been a steady stream of tariff talk was reduced to a trickle. The Trump administration has set April 2 as the date it will unveil its broader tariff-driven trade policy. The goal will be to implement reciprocal tariffs that aim to level the global trade playing field.
Chief Investment Officer Thierry Hasse
The S&P 500 had a late rally on Friday to close the week with a small 0.5% gain, thus avoiding a fifth straight week of declines (Source: CNBC). Investors might be able to take some comfort with a pause in the rapid price correction experienced by the U.S. stock markets since recording new highs in late February. But volatility is sure to return because it’s difficult to predict the potential negative impact that tariffs may have on inflation and economic growth.
Fed Chairman Calms Financial Markets
As anticipated, the Federal Reserve kept interest rates unchanged at the latest Federal Open Markets Committee meeting on Wednesday. During the news conference following the meeting, Fed Chairman Jerome Powell managed the rare feat of pleasing both equity and fixed income investors. Powell noted that:
- Tariffs and policy uncertainty hurt consumer and business confidence.
- Progress on reducing inflation will be delayed.
- The U.S. economy remains on solid footing with a low rate of unemployment.
Fed officials made it clear that they are ready to act quickly to support the economy if hard data start to show some deterioration, but for now they can afford to take a wait-and-see approach.
A Reminder of the Importance of Diversification
For the past few years investing in the stock market has been relatively simple: You only had to buy large U.S. technology companies, the so-called Magnificent 7 that includes Apple and Microsoft, and enjoy an annual return of 20%.
This is no longer the case. Microsoft stock, for example, is down 7% this year and is 16% below its record high from July 2024 (Source CNBC). While Microsoft remains a key player in artificial intelligence, with many products incorporating generative AI technology in cloud and personal computing, investors have been questioning the high capital expenditures required to build AI infrastructure. For any single company, these periods of underperformance happen frequently. The challenge for investors is to distinguish between a temporary setback and a fundamental change in the underlying business.
What We’re Watching This Week
We could use another week of relative calm in the financial markets. But do not count on it: This week will bring few important economic indicators until the release of the Personal Consumption Expenditures, the Federal Reserve’s preferred measure of inflation. The reading for February is not expected to show much progress, unfortunately, and with little meaningful corporate earnings reports scheduled for the week, investors will have to contend with the ever present risk of market-moving headlines from the White House.
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