Optimism fades as tariffs and economic data disappoint

The market declined noticeably this past week as softening economic data along with some high-profile earnings letdowns challenged the momentum that had carried major indices to record highs in the prior week. The S&P 500 declined 2.4%, the Nasdaq Composite lost 2.2%, and the Dow Jones Industrial Average underperformed with a 2.9% drop. The Russell 2000 slumped 4.2%, and the S&P Midcap 400 fell 3.5%, reflecting a broader retreat amongst the smaller cap companies.

The week began on a positive note as news of a U.S.–EU trade agreement lifted the market. This was followed by impressive earnings reports from Microsoft and Meta. These positive feelings shifted negatively as several megacap names, including Amazon and Apple, disappointed with their outlooks. Worsening matters was a sweeping escalation in tariff policy, most notably increased rates on imports from Brazil, Canada, India, and Taiwan, sparked renewed concerns about corporate margins and global trade dynamics. Meanwhile, Friday’s employment report added to the uncertainty, with nonfarm payrolls rising just 73,000 and prior months were revised sharply lower, dragging the three-month average to a meager 35,000.

Sector performance reflected a shift in investor sentiment to more of a defensive stance. This was illustrated by the utilities sector being the only one that managed to finish higher, gaining 1.5% as investors rotated defensively. Communication services was the lone neutral spot, ending flat despite Meta’s standout quarter. The remaining nine sectors finished in the red: materials dropped 5.4%, consumer discretionary declined 4.5%, health care lost 3.9%, financials fell 3.8%, industrials dropped 3.4%, and real estate declined 3.5%. Even the typically resilient consumer staples sector finished down 1.1%. Energy stocks lost 1.6% despite early-week gains in crude oil, and information technology slipped 1.4%, held back in part by a 2.1% weekly decline in the Philadelphia Semiconductor Index as disappointing chipmaker results weighed on sentiment.