What Happened Last Week
- Sentiment Souring: Policy uncertainty is likely contributing to the deterioration in animal spirits.
- Slowdown Fears: Investor growth concerns were fueled in part by a big consumer confidence miss.
- Price Action: The unwinding of popular trades continued, sending the NASDAQ 100 down during the year.
What We’re Watching This Week
- Tariffs: Canada, Mexico, and China all back in U.S. tariff cross-hairs; investors still think tariffs are a negotiating tool.
- Data: Friday’s jobs report is the main event; it is time for the hard data to either confirm or refute the growing near-term economic negativity.
- Policy: Trump’s first State of the Union, China’s annual economic planning meetings, emergency EU defense meeting, and ad hoc Ukraine peace process updates all on the docket.
Investment Management Team’s Views
It was another busy week of market-moving news that felt more intense than the actual week-over-week market changes suggest. Conflicting headlines on this week’s Canada and Mexico tariff deadline, potential increases to tariffs on China, a contentious meeting between Trump and Zelensky, and confusion around the extent of cuts by DOGE all weighed on sentiment. The unwinding of popular trades continued despite a beat and raise earnings release from Nvidia and strong earnings from key national retailers. Growth and AI stocks were the main laggards last week, with the NASDAQ 100 now down on the year. Tariff threats pushed up the dollar last week, weighing on emerging market equities. U.S. stocks outperformed internationals for the first time since before Trump’s inauguration.
Persistent policy uncertainty is souring sentiment across Main Street and Wall Street. Investors fear that a downturn in business and consumer sentiment could lead to a slowdown in growth. Rates markets reflected this economic pessimism by adding another rate cut to 2025 pricing as longer-term Treasury yields fell 20-25 bps. Last Tuesday’s consumer confidence release did not offer any relief either, unwinding its post-election surge and then some. The widely followed Atlanta Fed GDP estimate for 1Q25 GDP also fell sharply. Although surveys have not been the most reliable in the post-Covid period, poor sentiment readings aren’t doing much to soothe an increasingly anxious Wall Street’s nerves – but supportive hard data will.
Look no further than this week for that first tranche of hard data, which will be scrutinized closely for signs of a growth slowdown. Friday’s employment report is undoubtedly the most important of this week’s releases. Tariffs are also on the calendar, with 25% on Canada and Mexico and an additional 10% on Chinese imports set to go into place as soon as tomorrow. The market generally expects tariffs on Canada and Mexico to either be delayed or repealed quickly, but the risk is skewed towards tariffs on China sticking. This week is packed with policy events that are on our radar, including Trump’s State of the Union address, a key economic meeting in China, an emergency EU council meeting on defense and Ukraine, and updates on the Ukraine peace process.
