Markets shaken by stagflation and tariffs 25/02/2025

HOT stories for today

US market wrap:
 

• During Monday’s standard trading session, stocks of major technology firms weighed on the S&P 500 and the Nasdaq Composite, leading both indices to end in the red. Defense technology and artificial intelligence firm Palantir prolonged last week’s downturn, tumbling over 10%, while Microsoft dipped 1% following a TD Cowen report indicating the company is curbing expenditures on data centers.
• The tech sector’s slump also dragged the Nasdaq Composite into negative territory for the year. Concerns over a slowdown in AI-related spending, along with upcoming earnings reports from Home Depot and other key economic indicators, are keeping investors cautious as February draws to a close. In the S&P 500 heatmap, six out of eleven sectors finished higher, with healthcare (+0.81%) outperforming, while technology (-1.43%) lagged behind.

Markets shaken by stagflation and tariffs

• Stagflation fears—rising inflation and slowing growth—are back and harder to shake. For years, inflation concerns were offset by confidence in the U.S. economy. Trump’s election win boosted optimism about “U.S. exceptionalism,” expected to support stocks and the dollar. Now, stagflation worries are growing. U.S. stocks trail Europe, the dollar is down 1.7% this year, and Friday’s market drop highlighted investor anxiety. 
• Friday’s PCE inflation data, the Fed’s preferred gauge, is expected to show 0.3% monthly increases, with annual rates easing slightly. But inflation remains above 2% despite past Fed hikes. Inflation expectations are rising, business costs increasing, and the 5-year breakeven rate hit a two-year high. Analysts warn the Fed may tighten policy, risking a stock market downturn. Markets remain cautious, with Monday’s mixed performance following weak consumer sentiment and sluggish retail sales. Without surprises, pessimism may persist. After a brief lull on trade issues, President Trump has reignited tariff tensions, announcing that paused tariffs on Canada and Mexico will “go forward” next week, adding another layer of uncertainty to the market.

 
Stocks on the move:       

• HIMS (HIMS): The telehealth stock plunged over 17% after reporting a 77% gross margin for Q4, missing the 78.4% expected by analysts polled by StreetAccount. This overshadowed its earnings and revenue beats.
• ZM (Zoom): Shares dipped 1% after the video-conferencing company issued a revenue outlook that narrowly missed analyst estimates.
• CLF (Cleveland-Cliffs): The steel producer slid 2% after missing Wall Street’s Q4 expectations, reporting a 92-cent loss per share on $4.33 billion in revenue.
• FANG (Diamondback Energy): The oil and gas stock gained 1% after posting $3.64 adjusted EPS on $3.71 billion in revenue, beating estimates of $3.35 per share and $3.53 billion in revenue.

Today’s action

• Asia-Pacific markets declined Tuesday after Wall Street's slump, as Trump’s tariff threats fueled a risk-off sentiment. Investors also weighed the Bank of Korea’s rate decision. Japan’s Nikkei 225 led regional losses, dropping over 1%, while the Topix fell 0.32%. However, Japan’s major trading houses surged after Warren Buffett announced plans to boost Berkshire Hathaway’s stake in the conglomerates.
• S&P 500 futures edged up 0.15%, while Nasdaq-100 futures hovered near the flatline. Dow Jones futures gained 71 points (0.16%) after the index extended last week’s decline into a third straight losing session. Investors are now eyeing the latest U.S. consumer confidence report, set for release at 10:00 a.m. ET Tuesday. This precedes a series of key economic updates, including January’s PCE price index on Friday, the Fed’s preferred inflation gauge.

Wahtclist: PLTR, HIMS, ZM, CLF, FANG, HD, AMT, META

Bitcoin

• Bitcoin tumbled Monday evening around 6 p.m. ET after news broke that President Trump plans to impose a 25% tariff on Canadian and Mexican imports starting March 4, 2025. The announcement coincided with a broader market downturn, as investors also reacted to concerns over Nvidia’s earnings.
• Alongside the crypto market, Nvidia shares have been in freefall, dropping 12% in five days and 16.5% over the past month, though still up 105% over six months. The stock now hovers just below $300. Bitcoin also struggled to find support, dipping below $96,000 earlier in the day and nearing $95,000 for the first time since last week’s crash. By 6:58 p.m. ET, BTC had plunged to $91,362, down 4.8% in 24 hours and 12.7% over the past month, reflecting shaky market sentiment.
  Watchlist: Bitcoin: 89 000-109 500, Ethereum: 2200-3000, Solana: 180-276

Forex

• EUR/USD gains traction around 1.0470 in Tuesday’s Asian session, buoyed by renewed confidence in the euro following the CDU-CSU alliance's election victory in Germany. The pair maintains a bearish outlook, trading below the 100-period EMA, with an RSI indicator signaling further downside risk. Initial support is seen at 1.0400, while resistance lies in the 1.0525-1.0530 zone.
• Meanwhile, the Japanese yen attracts dip buyers after an early session slide, dragging USD/JPY below the mid-149.00s. Expectations that the Bank of Japan will continue raising interest rates remain a key tailwind for the yen, reinforced by strong consumer inflation and Japan’s Services Producer Price Index (PPI), which reflects businesses passing on higher labor costs. However, retreating JGB yields could cap further yen gains, providing some support to the USD/JPY pair.
  Watchlist: EUR/USD: 1.0200-1.0550, USD/JPY: 153.6-158.80

Basic Materials

• WTI crude oil trades in positive territory near $70.80 in Tuesday’s early Asian session, extending its recovery amid concerns over near-term supply constraints. The latest U.S. sanctions on Iran, announced by the Treasury and State Departments on Monday, targeted key individuals and companies, including the head of Iran’s national oil company, adding to supply worries and supporting oil prices. Meanwhile, Trump’s tariff plans and the ongoing war in Ukraine remain in focus, contributing to market uncertainty.
• Gold retreats from its record high as traders take profits but holds near its all-time peak. While slightly overbought conditions trigger some selling, concerns over Trump’s tariff plans provide support for the safe-haven asset. Additionally, expectations of further Fed rate cuts could act as a tailwind for gold, limiting downside pressure.
  Watchlist: GOLD 2600-2945, US Oil: 70.00-79.00

Key Economic Events Today:

EST time
10:00 am: USD CB Consumer Confidence
10:00 am: USD Richmond Manufacturing Index 
11:45 am: USD FOMC Member Barr Speaks
01:00 pm: USD FOMC Member Barkin Speaks

Earnings

BMO (Before the US Market opens)

HD            Home Depot Inc.
AMT          American Tower Corp.
BMO         Bank of Montreal
SRE          Sempra
AMC (After the US Market closes): INTU, WDAY, CPNG, AXON

The TEFS Analyst team wishes you a successful day!