We had a mixed price action last week, with the major equity indexes—S&P 500 and Nasdaq—declining by 1% and 3.5%, respectively, while the Dow Jones finished on a positive note, up by 1%. Amid a risk-off sentiment, we observed a strong demand for safe havens, resulting in Treasury bonds yields tightening by approximately 25 basis points. Credit spreads widened by 1 to 6 basis points, while the dollar index strengthened by 1%.
Stocks have retreated from recent record highs as consumer confidence, sentiment data, and spending have sharply declined, while inflation remains somewhat persistent. In light of the recent softer economic data, market expectations for rate cuts by the Fed have increased from 25 basis points to 50 basis points in 2025.
On the corporate front, Nvidia's earnings results last week failed to generate much enthusiasm, contributing to another disappointing week for U.S. tech stocks. The sector continues to face pressure due to the recent rise in competition from China in the Artificial Intelligence space.
Meanwhile, this week marks the implementation of the 25% U.S. tariffs on Mexico and Canada, as well as an increase from 10% to 20% on imports from China. With an impact on approximately $1.5 trillion in annual imports, Trump has stated that the tariffs are intended to encourage nations to align on issues concerning migration and drugs. Markets will continue to closely monitor these developments, as a renewed tariff war threatens to trigger a broader sell-off in assets.
