Key Takeaways
- Markets Remain Weak As Major Indices Struggle Below Key Resistance Levels
- Tariff Uncertainty And Inflation Concerns Continue Driving Market Volatility
- Economic Data And Government Policy Decisions Impact Investor Sentiment Strongly
The S&P 500, Nasdaq Composite and Dow Jones Industrial Average all managed to recover from their lows Tuesday, but still closed in the red. It marked their worst two-day performance since August. The Russell 2000 was the only index not down on Tuesday, closing unchanged from Monday. Volatility did pull back slightly, but still remains elevated as the global trade war continues to take shape.
This morning, the latest data on inflation was released. According to Bloomberg, forecasts for the Consumer Price Index (CPI) were for a month-over-month increase of 0.3% and year-over-year increase of 2.9%. Core CPI, which excludes food and energy was expected to be up 0.3% month-over-month and 2.9% annually. The actual numbers came in slightly weaker than forecast by 0.1% across the board.
On Tuesday, the Trump Administration enacted tariffs of 25% on steel and aluminum imports. In response, the European Union (EU) announced it will place tariffs on U.S. exports of bourbon, whiskey, boats and motorcycles beginning in April. A second round of tariffs will then begin in mid-April after the EU has consulted with member countries. Also, China announced they will enact tariffs, though details were not yet available. At the same time, the Chinese Commerce Secretary met with Walmart amidst reports the retailer is asking Chinese companies to reduce prices to offset tariffs.
Taiwan Semiconductor approached Nvidia, Advanced Micro Devices and Broadcom about a joint venture. The group would collectively operate Intel factories to manufacture chips. Taiwan Semiconductor would own no more than 50% of the venture, but it would further the company’s investment in the U.S. chip manufacturing sector. Talks are in the very early stages, but this could be a story worth watching.
The macro-economic situation is one that continues to offer twists and turns. Tariff wars and inflation garner most of the headlines, but I think we also need to pay attention to ancillary effects from job cuts due to cuts in government grants/funding and downsizing of the overall federal government. Some of the cutbacks in federal grants to universities may impact nearby businesses. Many local economies are reliant upon university student and employee spending. If these schools see reduced funding, it could have implications for the surrounding community.
Turning back to the broader market, yesterday was the second consecutive day where the S&P 500 closed below its 200-day moving average (DMA). It was the third day in a row for the Nasdaq. One thing I’ve noticed in the past few days is the market trying to stage a rebound around midday. It very much feels like we’re trying to find a new trading range with that 200 DMA serving as a ceiling. Until we manage to close above that level, and so long as volatility stays elevated, I think it’s reasonable to expect continued turbulent trading.
For today, I think we avoided a potential concern for now as the House passed a budget last night. The bill is now with the Senate and needs to be passed by Friday in order to avoid a government shutdown. The CPI numbers came in slightly below expectations and it’ll be interesting to see if the market interprets this as a continuation of subsiding inflation or as an indication the economy is weakening. The initial response in premarket trading was positive, and I’d like to see that hold. As I mentioned above, I think a break and close above the 200 DMA is important. But I think what is equally important is that we see the market stage a rally and hold it. As always, I would stick with your investing plan and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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