In the past month, a positive atmosphere surrounding the U.S. stock market has begun to dissipate, as the promises of deregulation and tax cuts have yet to materialize, while fears and ramifications of tariff increases are becoming increasingly evidentJust last week, U.S. stock indexes experienced a sweeping decline, with the S&P 500 index momentarily slipping below the crucial 50-day moving average, a line that divides bullish and bearish territoriesAll three major indexes are now retracing the gains made since November, reflecting a concerning sentiment among investors.

The fear index, commonly referred to as the VIX, surged to a new high not seen since February, marking an increase of nearly 25% for the weekWeak economic indicators have sparked worries about the stability of the economy, prompting analysts to express doubts about the Federal Reserve's stance on delaying interest rate cuts amidst prevailing trade and political risks.

With concerns over tariffs likely to linger, volatility in the markets seems poised to continue for the foreseeable futureThe economic landscape has dramatically shifted, especially following a deceleration in GDP growth recorded during the fourth quarter of 2024. Recent data suggests that economic pressures are mounting even further in the current quarter, contributing to a growing sense of unease.

The S&P Global Purchasing Managers' Index indicates a slight recovery in the manufacturing sector, yet the overall composite PMI plummeted to its lowest level in 17 months, dropping from 52.7 in January to 50.4 in FebruaryMost troubling is the plunge in the services sector, which has fallen below the threshold indicating expansion, highlighting the deepening worries stemming from tariff-related impacts and a decrease in domestic consumer spending.

American consumers are becoming increasingly pessimistic about the economic outlook, with the University of Michigan’s Consumer Sentiment Index unexpectedly declining in February

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The five-year inflation expectations have risen to 3.5%, reaching a high not seen since 1995. This decline in consumer confidence has led to heightened anxiety among investors, particularly following Walmart's disappointing earnings guidance, which raised alarms about the financial health of American consumersAs noted by FWDBONDS Chief Economist Loupeji, "If consumers hesitate in the face of rising prices, the economy could quickly come crashing down."

The combination of proposed tariffs and the Federal Reserve’s cautious approach has escalated uncertainty in the economyMinutes from recent meetings show that more evidence is needed to prove a decline in inflation before considering interest rate cutsCertain policymakers have hinted that if economic conditions remain strong and inflation persists, interest rates may stay elevatedPotential changes in trade and immigration policy, geopolitical tensions causing supply chain disruptions, and consumer spending exceeding expectations all contribute to inflation risks.

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, articulated concerns over uncertainties stemming from tariff and immigration policy changes, suggesting these factors could influence inflation and employment levelsHe warned that “Businesses fear tariffs could increase their costs, and if that happens, they will likely pass on the higher costs in pricing.”

In the meantime, long-term U.STreasury yields have receded, with the two-year Treasury yield, closely linked to rate expectations, falling by 6.6 basis points to 4.19%. The benchmark 10-year Treasury yield dropped by 5.7 basis points to 4.42%. This has fueled renewed expectations of interest rate cuts, with the market pricing in a likelihood of two rate reductions by the year’s endGoldman Sachs recently revised its predictions for the Federal Reserve's easing, contending that the market still underestimates the inflationary impacts of tariffsAs they stated, "The Fed is in a position to remain patient until it has better confidence regarding potential inflationary pressures and a clearer understanding of trade and fiscal policy outcomes."

As market volatility persists, last week’s performance in American stock markets reflected a tumultuous atmosphere

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A decline was exacerbated late in the trading session due to newly imposed tariff threats and ongoing concerns about consumer demand weakeningAs the Dow Jones plummeted to its lowest point since January 16, all three major indexes reverted to their November losses.

Sector performance varied, with non-essential consumer goods and communication services suffering the most, both falling over 4%. Following a stellar 20-day streak, Meta, the well-known tech giant, saw its shares decline by more than 7%. Other sectors such as industrials, materials, financials, and tech stocks also struggledConversely, utility, energy, and healthcare sectors managed to rise by over 1% amid the turmoil.

In a report by SPI Asset Management's Managing Director Innes, he commented, “The market has a way of ignoring problems until they become unavoidable, and now the risk of stagflation—once considered a relic of the 1970s—is slowly returning to focus.” AXS Investments’ CEO Basuk reinforced this sentiment, noting how factors such as consumer sentiment, tariffs, and corporate earnings have eclipsed discussions surrounding AI and technology developments, evolving into the prevailing narrative driving market direction.

As the financial reporting season enters its concluding phase, approximately 425 companies from the S&P 500 index have released earnings results, with a notable 76% surpassing Wall Street’s expectationsAnalysts now anticipate an impressive 15.7% year-on-year earnings growth for the S&P 500 in the fourth quarter, a significant improvement from initial predictions of 7.8% made earlier in the year.

However, following Walmart's disappointing guidance, apprehensions concerning consumer spending have escalated significantlyIn the upcoming week, many consumer goods companies, including Home Depot and Lowe’s, are set to announce their earnings, and they are anticipated to be under intense scrutinyMeanwhile, Nvidia, a leader in AI technology, is poised to report its earnings amidst pressure from competitors like DeepSeek, and how it navigates these challenges could significantly impact market perceptions.

Charles Schwab stated in its market outlook that the last two trading days of the previous week were characterized by continued selling pressure, warning that several potential bearish risks loom short-term

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