Market Wrap: Lower Close as Tariff Uncertainty Sparks Late Sell-Off

The stock market faced a sharp downturn in the early afternoon following confirmation from the White House that new tariffs on Canada, Mexico, and China will take effect on February 1.

While reports about the tariffs had circulated the previous day, the official announcement introduced additional uncertainty, leading to increased selling pressure across equity markets. Investors, already wary of the economic implications of trade policy shifts, opted for a cautious stance ahead of the weekend, curbing any attempts at a dip-buying rally.

Market Performance and Sector Breakdown

The major indices closed in the red after starting the day in positive territory. The Dow Jones Industrial Average led the decline, falling 0.8 percent, while the S&P 500 lost 0.5 percent, and the Nasdaq Composite dropped 0.3 percent. The Russell 2000, which tracks small-cap stocks, fell 0.6 percent.

Apple, which initially surged as much as 4 percent after reporting earnings, reversed course to close down 0.7 percent. Broader market participation in the sell-off was evident, with 26 of the 30 Dow components ending the session lower.

Nine of the 11 S&P 500 sectors closed in negative territory, with consumer staples and energy stocks among the hardest hit. Declining stocks outpaced advancing issues by a 5-to-2 margin on the New York Stock Exchange and a 2-to-1 ratio on the Nasdaq.

Treasury Yields Surge as Inflation Concerns Persist

The confirmation of tariffs pushed Treasury yields higher as investors recalibrated expectations for inflation and Federal Reserve policy. The 10-year Treasury yield climbed six basis points to 4.57 percent, erasing earlier declines that had taken it as low as 4.50 percent. The 2-year yield rose by four basis points to 4.24 percent.

The bond market’s reaction suggests that traders remain wary of inflationary pressures, particularly in light of the latest economic data. The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation, showed that core prices increased 2.8 percent year-over-year for the third consecutive month, reinforcing the Fed’s cautious stance on rate cuts.

Corporate Earnings Results and Market Reaction

Earnings season continued with mixed reactions from investors.

- AbbVie gained 4.7 percent after delivering strong results that exceeded expectations.

- Atlassian surged nearly 15 percent following a robust earnings report and upbeat guidance.

- Exxon Mobil and Chevron saw sharp declines of 2.5 percent and 4.6 percent, respectively, despite reporting earnings that were largely in line with estimates.

- Colgate-Palmolive fell 4.6 percent after issuing a weaker-than-expected outlook for the upcoming quarter.

The sell-off in energy stocks suggests that investors remain concerned about demand and pricing dynamics in the oil market.

Economic Data Highlights

Several key economic reports were released during the session, providing further insights into inflation, consumer spending, and labor costs.

- Personal Income and Spending:

- Personal income rose 0.4 percent in December, in line with expectations.

- Personal spending increased 0.7 percent, above the consensus estimate of 0.5 percent, indicating continued consumer resilience.

- The PCE Price Index rose 0.3 percent in December, reflecting ongoing inflationary pressures.

- Employment Cost Index:

- Compensation costs increased 0.9 percent in the fourth quarter, slightly moderating from 0.8 percent in the prior quarter.

- Over the past 12 months, compensation costs rose 3.8 percent, down from 4.2 percent, signaling a gradual cooling of wage pressures.

- Chicago PMI:

- The index rose to 39.5 in January from 36.9 in December but remains well below the 50 level, indicating continued contraction in the manufacturing sector.

Looking Ahead: Key Data and Market Events Next Week

Investors will turn their attention to a series of important economic reports next week, including:

- Monday: Final January S&P Global U.S. Manufacturing PMI and ISM Manufacturing Index

- Tuesday: December Job Openings (JOLTS) and Factory Orders

- Wednesday: ADP Employment Report and ISM Services Index

- Thursday: Weekly Jobless Claims, Productivity, and Unit Labor Costs

- Friday: January Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings

With inflation still above the Federal Reserve’s 2 percent target and economic data showing continued strength in consumer spending and employment, investors will be watching closely for any signs that could influence the Fed’s decision-making process on interest rates.

Conclusion

The stock market’s late-session slide underscores the lingering uncertainty surrounding trade policy and inflation. While earnings reports were mixed, the overriding concern for investors remains the potential economic impact of tariffs and whether they could further delay the Federal Reserve’s timeline for rate cuts.

Treasury yields continue to move higher, signaling that investors remain cautious about inflation and its implications for monetary policy. As economic data continues to roll in, market participants will be looking for further confirmation of the Fed’s stance on interest rates and whether consumer spending and wage growth remain strong enough to sustain current economic momentum.