US Markets Drop on Tariff Uncertainty; Bonds Gain
The Dow (-1.3%), NASDAQ (-1.0%), S&P 500 (-0.4%), and EAFE (1.2%) were mixed last week. Please note that I have added EAFE (an acronym for an index that stands for Europe/Australasia/Far East and is a measure of international stocks). We will begin including that index, as international stocks represent 40% of all the world stocks, so it’s not just all about the US indices. Taxable bonds and tax-free municipal bonds also rose by 0.5% and 0.3%, respectively. The 10-year Treasury yield fell 0.15% to eclipse the 4% mark, finishing the week at 3.98%.
US stocks indexes lost ground last week as concerns over AI’s impact on the labor market continue to dominate the news on Wall Street. See the chart below that shows how software stocks have fallen sharply over the past six months compared to the overall market. Further, Wall Street doesn’t like uncertainty, and that is exactly what we got when the Supreme Court ruled that the tariffs were unconstitutional but also alluded to other pathways the Trump administration could push tariffs under other laws. The potential need to pay back the tariffs also lingers out there, adding to the uncertainty. Of course, international stocks cheered the ruling, as evidenced by them gaining over 1% last week. When things become uncertain, investors often run for safety by buying bonds, pushing bonds up for the week, and driving the 10-year Treasury yield below 4%. Mortgage rates also fell below 6% for the first time since late 2022.
In economic news, jobless claims came in slightly higher than the prior week, but barely lower than analysts’ expectations. Continuing claims fell slightly, too, and the combination of the data implies that employers are slow to hire and slow to fire. The Produce Price Index (PPI – the prices paid by companies) also rose sharply in January, and well above investors’ expectations. This data implies inflationary pressure at the wholesale level, which can put a damper on the Fed cutting interest rates in the near term.
Corporate earnings season has basically concluded, and with the largest company (Nvidia) reporting blockbuster earnings last week (but AI stocks went down nonetheless). However, earnings overall were spectacular, as the original earnings growth estimate for the S&P 500 was 7%, and actual earnings growth was 14%. Plus, 75% of companies beat their estimates, and every sector had positive earnings growth for the quarter. According to John Hancock / Manulife Investments, the consensus for 2026 earnings growth is 14.47%. Not too shabby, given that the intrinsic value of a stock is based on its earnings and earnings growth.
Lastly, the US and Israel began bombing Iran over the weekend and have reportedly taken out many of the governmental leaders of Iran. This has caused oil prices to spike and stocks to fall sharply in pre-market trading. It is unclear how long this military conflict will last, and how much of an impact it could have on global oil supply, the markets, and other international relations. Once again, markets don’t like uncertainty, so here we go again. Barring any major escalation or fallout from this conflict, we believe this may be a short-term market impact.
Have a great day and terrific week!
Source: Yahoo Finance
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The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
