Market Recap – Wednesday, April 16, 2025
US-China Tensions and Fed Warnings Weigh on Markets Amid Mixed Economic Data
US equities closed lower today, ending a streak of modest rallies, with notable weakness in big tech, particularly NVDA-US. The Dow, S&P 500, and Nasdaq all posted declines, although the Russell 2000 showed slight gains. Sectors such as energy, REITs, and utilities showed relative strength, while semiconductors and software were among the biggest laggards. Gold saw a strong performance, finishing up 3.3%, while crude oil prices continued to show resilience with a 1.8% increase.
Trade Tensions and Tariffs Drive Volatility
Trade concerns remained a key driver of market sentiment. The escalation in US-China tensions, highlighted by new tariffs on Chinese imports and export restrictions on AI chips, weighed on tech stocks like NVDA and AMD. Despite some positive relief in the form of tariff exemptions for electronics, trade talks with key allies, including Japan, showed little progress. The market is grappling with heightened uncertainty as tariff impacts on inflation and growth continue to unfold.
Fed's Powell Warns of Persistent Inflation Pressures
In his prepared remarks today, Fed Chair Jerome Powell acknowledged the significant impact of tariff increases on inflation and economic growth, signaling that the effects may persist longer than initially expected. Powell reaffirmed that the Fed remains in a strong position to wait for more clarity before making any policy adjustments. The market remains highly sensitive to inflationary pressures, especially as long-term inflation expectations stay steady while short-term expectations rise.
Retail and Industrial Data Show Mixed Signals
March retail sales showed a modest 1.4% increase, slightly exceeding expectations, driven by strength in categories like autos, building materials, and sporting goods. However, March industrial production fell 0.3% month-over-month, missing expectations for a slight decline. Despite some positives in consumer spending, business sentiment remains weak, with sharp declines in the Empire State Manufacturing Index and consumer sentiment surveys.
Earnings Season Picks Up Amidst Macro Uncertainty
As earnings season picks up, some companies are seeing mixed results. ASML-US missed on bookings and noted heightened macro volatility from tariffs, while JNJ-US reaffirmed its guidance, driven by strong medical device performance. On the other hand, IBKR-US missed earnings, and OMC-US lowered its FY guidance due to macro uncertainties. The ongoing tariff-related challenges continue to cloud the outlook for many companies, especially those in sectors like semiconductors and tech.
Here’s Our Take
As trade tensions and tariff uncertainties continue to dominate market dynamics, investors should remain cautious about sectors most affected by these factors, particularly big tech, semiconductors, and consumer discretionary. While positioning dynamics and earnings reports have provided some relief, the broader macro environment remains volatile. For long-term investors, it’s crucial to monitor the potential impact of further tariffs and their effects on inflation expectations and economic growth. Diversifying into sectors like energy, REITs, and utilities could offer more stability amid this uncertainty. Additionally, keeping an eye on earnings reports and the Fed's stance on inflation will be critical for navigating market volatility in the coming weeks.