Stock Market Update

[BRIEFING.COM] The stock market was trading in good form for most of the morning, but stocks took a sharp turn lower in the early afternoon. The deterioration coincided with the White House confirming that 25% tariffs for Canada and Mexico, and a 10% tariff for China, will begin tomorrow (February 1). The basis for the tariff actions were tied to immigration, trade deficit, and fentanyl issues.

It wasn't exactly breaking news as there were similar reports out yesterday, but the added uncertainty heading into the weekend was enough to drive selling interest and quell any buy-the-dip action. There were subsequent reports hinting at behind-the-scenes negotiations that may lead to the tariff actions being called off or at least watered down, but the major indices still closed near their worst levels of the session. 

The Dow Jones Industrial Average fell 0.8%, the S&P 500 registered a 0.5% decline, and the Nasdaq Composite was 0.3% lower than yesterday.

Even Apple (AAPL 236.00, -1.59, -0.7%), which was up as much as 4.0% after reporting earnings, ultimately closed lower on the day. Many other stocks participated in the afternoon retreat. 26 of the 30 Dow components were in the red, nine of the 11 S&P 500 sectors closed lower, and market breadth favored decliners by a 5-to-2 margin at the NYSE and by a 2-to-1 margin at the Nasdaq.

Treasury yields jumped in response to the tariff talk, which put added pressure on equities. The 10-yr yield settled six basis points higher than yesterday at 4.57% after hitting 4.50% earlier and the 2-yr yield rose four basis points to 4.24%.

The initial positive bias in equities was fueled by this morning's relatively pleasing inflation data. The core-PCE Price Index (the Fed's preferred inflation gauge) was up 2.8% year-over-year for the third month in a row following a 0.2% month-over-month increase.

In corporate news, responses to earnings results were mixed. AbbVie (ABBV 183.90, +8.25, +4.7%) and Atlassian (TEAM 306.78, +39.83, +14.9%) were among the earnings-related winners while Exxon Mobil (XOM 106.83, -2.74, -2.5%) and Chevron (CVX 149.19, -7.13, -4.6%), and Colgate-Palmolive (CL 86.70, -4.19, -4.6%) registered declines.

• Dow Jones Industrial Average: +4.7.% YTD
• S&P Midcap 400: +3.8% YTD
• Russell 2000: +2.6% YTD
• S&P 500: +2.7% YTD
• Nasdaq Composite: +1.6% YTD

Reviewing today's economic data:

• December Personal Income 0.4% (Briefing.com consensus 0.4%); Prior 0.3%, December Personal Spending 0.7% (Briefing.com consensus 0.5%); Prior was revised to 0.6% from 0.4%, December PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.1%, December PCE Prices - Core 0.2% (Briefing.com consensus 0.2%); Prior 0.1%
  • The key takeaway from the report is that consumer spending is strong (which we knew from the Adv. Q4 GDP report) and that inflation is sticky above the Fed's 2% target, making it clear why the Fed said it isn't in a hurry to adjust its policy stance.
• Q4 Employment Cost Index 0.9% (Briefing.com consensus 0.9%); Prior 0.8%
  • The key takeaway from the report is that compensation costs moderated to 3.8% for the 12-month period ending in December 2024 from 4.2% for the 12-month period ending in December 2023.
• January Chicago PMI 39.5 (Briefing.com consensus 41.5); Prior 36.9

Looking ahead to Monday, market participants receive the following economic data: Final January S&P Global U.S. Manufacturing PMI (prior 50.1) at 9:45 ET; December Construction Spending (prior 0.0%) and January ISM Manufacturing Index (prior 49.3%) at 10:00 ET.