The market has been in a downtrend for a few weeks due to concerns over growth and tariffs, which continued this last week. The S&P 500 broke below its 200-day moving average and entered correction territory (i.e. 10% from its February 19 high) while the Nasdaq Composite extended its position in correction territory. Mega cap stocks had an outsized impact on the broader equity market. The Vanguard Mega Cap Growth ETF (MGK) settled 2.6% lower. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) closed flat on the week. Only two S&P 500 sectors had gains, energy (+2.6%) and utilities (+1.9%). The consumer staples (-4.3%), consumer discretionary (-3.7%), and communication services (-2.5%) sectors registered the largest declines.
Things started off poorly last week as fears about economic growth spread after President Trump said in an interview that the economy is going through a “period of transition” and he declined to answer directly if the U.S. will experience a recession. Then trade war tensions increased after President Trump announced that the US will impose a 50% tariff on Canadian steel and aluminum imports, starting Wednesday, instead of the originally proposed 25%. The escalation followed a retaliatory measure by Ontario, which imposed a 25% tariff on exports of electricity to the U.S. in response to the originally planned 25% tariffs on Canadian imports. President Donald Trump also announced a potential 200% tariff on European beverage imports, including wines and spirits. This move was in response to the European Union’s recent tariffs on American whiskey.
Last week’s inflation data was relatively positive, yet markets didn’t respond in kind due to the understanding that inflation remains above the Fed’s 2.0% target and trade policy may negatively impact future datapoints. The Consumer Price Index (CPI) report for February showed inflation rising at a slower-than-expected pace, providing a measure of relief to markets after last month’s hotter-than-expected reading. On a year-over-year basis, total CPI was up 2.8% versus 3.0% in January and core-CPI was up 3.1% versus 3.2% in January. The February Producer Price Index also contained some lower-than-expected headline prints.