"US Equity Funds See Outflows on Tech Selloff, Trade War Worries"

The market is in turmoil. The recent imposition of 25% tariffs on imports from Mexico, Canada, and China by President Trump has sent shockwaves through the US equity market, leading to significant outflows from US equity funds, particularly in the tech sector. The S&P 500 index tumbled 126 points, or 2.1%, to 5,833 in late afternoon trading on Monday, while the tech-heavy Nasdaq composite index shed 3%, and the Dow Jones Industrial Average fell 1.8%. The market's reaction is a clear indication of the growing economic uncertainty and investor anxiety caused by the tariffs.

The tariffs, which are intended to stem the flow of fentanyl into the United States, have raised concerns about their potential impact on US economic growth and inflation. Economists have warned that the import duties could threaten U.S. economic growth and reignite inflation, which has already been a concern for consumers. The Federal Reserve Bank of Atlanta is forecasting an economic contraction in the first quarter, with gross domestic product projected to decline an annualized 2.8% in the current quarter—a reversal from growth of almost 3% that was forecast as recently as early February. This economic uncertainty has led to a drop in consumer confidence, which fell in February to its lowest in four years.

The outflows from US equity funds, particularly in the tech sector, reflect broader market trends and investor strategies in response to trade war uncertainties. Investors have been pulling out of US equity funds, especially in the tech sector, due to uncertainties surrounding trade policies. For instance, in the week to Oct. 30, investors divested a net $5.83 billion worth of US equity funds, the most since the seven days to Sept. 25. This outflow was driven by caution ahead of the presidential election and a Federal Reserve policy decision, indicating a heightened sense of risk aversion among investors. Additionally, the tech sector saw significant outflows, with $1.32 billion withdrawn in the week ending Dec. 18, reflecting concerns about the impact of tariffs on tech companies.

The tech sector has been particularly affected by trade war uncertainties. For example, nvidia (NVDA) stock slumped into bear market territory on March 3, 2025, losing 8.7% on Monday, extending a volatile stretch that followed last Wednesday’s earnings report. This decline was exacerbated by President Trump's confirmation of plans to impose a 25% tariff on Canadian and Mexican imports, which raised concerns about the impact on the AI trade and semiconductor stocks. The contagion continued on Monday, with fellow chipmaker broadcom (AVGO) following Nvidia stock lower, and AI server maker Super Micro Computer (SMCI) falling 13%.



The tariffs are expected to stoke inflation in the US by between 1.1% and 1.4% from tariffs on Canada and Mexico, with another 0.7% coming from those slapped on China. This inflationary pressure will likely lead to increased costs for businesses, which may pass these costs on to consumers. As a result, "the price of everyday goods will rise," affecting the purchasing power of consumers and potentially leading to a reduction in consumer spending.

Moreover, the tariffs could weigh on consumer spending at a time when households are still grappling with the fallout from post-pandemic inflation. The Federal Reserve Bank of Atlanta is forecasting an economic contraction in the first quarter, with gross domestic product projected to decline an annualized 2.8% in the current quarter. This economic uncertainty, coupled with the tariffs, could further undermine consumer confidence, which has already dropped to its lowest in four years.

The tariffs could also have a ripple effect on the broader economy. For instance, the Trump administration's push to shrink the U.S. government, including through widespread job cuts, could curtail spending by U.S. businesses. Ryan Sweet, chief U.S. economist at Oxford Economics, noted that "Federal workers all support jobs in the local economy by spending on Uber drivers, at restaurants, sporting events and barber shops." Therefore, job cuts in the federal workforce could have a negative impact on local economies, further exacerbating the economic downturn.

The outflows from US equity funds, particularly in the tech sector, reflect broader market trends and investor strategies in response to trade war uncertainties. Investors have been exercising caution and shifting to safe-haven assets, while sector-specific concerns and the impact on consumer confidence and spending have also played a role. The Federal Reserve's actions and statements have further influenced investor strategies, contributing to the overall trend of outflows from US equity funds.

In conclusion, the tariffs imposed by President Trump on imports from Mexico, Canada, and China have had a significant negative impact on overall market sentiment and investor confidence in the US equity market. The outflows from US equity funds, particularly in the tech sector, reflect broader market trends and investor strategies in response to trade war uncertainties. The potential long-term economic implications of the tariffs on US businesses and consumers, particularly in sectors heavily reliant on imports, are significant and multifaceted. These implications include increased prices for everyday goods, reduced corporate profits, and a potential reduction in consumer spending, all of which could contribute to economic uncertainty and a potential recession. The market's reaction to the tariffs is a clear indication of the growing economic uncertainty and investor anxiety caused by the tariffs, and it remains to be seen how the situation will unfold in the coming weeks and months.