US Equity Markets Decline Amid Inflation Concerns
US equity markets closed lower on Wednesday as investors reacted to concerns over new auto tariffs and their potential impact on inflation. The Nasdaq Composite fell 2%, closing at 17,899, while the S&P 500 dropped 1.1% to 5,712.2, snapping a three-day winning streak. The Dow Jones Industrial Average performed relatively better, falling by 0.3% to end the session at 42,454.8.
Technology Stocks Lead Losses
Technology shares led the broader market decline, particularly after reports that NVIDIA may face stricter regulations in China. Nvidia’s stock fell by 5.7%, marking the sharpest decline on the Dow and one of the steepest losses on the S&P 500.
Durable Goods Orders Surprise to the Upside
In economic data, US durable goods orders unexpectedly rose by 0.9% in February, following a strong 3.3% increase in January. This likely reflects a surge in business orders ahead of potential tariffs.
Treasury Yields Move Higher
Treasury yields rose in response to inflationary concerns, with the 10-year yield climbing to 4.35%, reflecting continued investor caution regarding inflation risks and monetary policy uncertainty.
Inflation Outlook Ahead of Key PCE Data
Looking ahead, inflation remains in focus as markets anticipate the release of the Personal Consumption Expenditures (PCE) index on Friday—the Federal Reserve’s preferred inflation gauge.
PCE Expectations
- Headline PCE (February): Expected to rise 0.3% month-on-month and 2.5% year-on-year
- Core PCE (February): Projected to increase 0.3% month-on-month and 2.7% annually
While recent CPI and PPI inflation readings were softer than expected, concerns over tariffs driving price pressures persist. However, policymakers may view such tariff-related price increases as temporary rather than a sustained inflationary force.
Fed Policy and Sector Performance in 2025
The Federal Reserve is expected to hold interest rates steady in the near term, awaiting further economic data before considering cuts later in 2025.
Equity market leadership has shifted in early 2025:
Top-performing sectors YTD:
- Energy: +10%
- Health Care: +6%
- Financials: +4.7%
Underperforming sectors:
- Consumer Discretionary: -9%
- Information Technology: -7%
This rotation underscores the importance of diversification, with investors advised to overweight health care and financials while maintaining a neutral stance on most other sectors.
Global Market and Economic Update
Asia-Pacific Markets React to AI and Tariff Concerns
Asian shares mostly declined as concerns over new US auto tariffs and a potential supply glut in the AI sector weighed on markets. Japan’s Nikkei and South Korea’s KOSPI suffered the steepest losses. However, Chinese equities remained stable, while Hong Kong’s Hang Seng index gained on optimism over China’s AI sector and potential economic stimulus from Beijing.
US Equity Futures Decline
US equity index futures declined following the auto tariff news:
- S&P 500 Futures: -0.2%
- Nasdaq 100 Futures: -0.3%
- Dow Jones Futures: -0.1%
Tech shares, particularly AI-related firms like Nvidia, also weighed on sentiment amid concerns over oversupply in AI data centers.
European Markets Fall, Autos Lead Declines
European equities declined on Wednesday:
- Stoxx 50: -1.4%
- Stoxx 600: -0.7%
The autos sector led losses, dropping around 2.5%, while UK markets reacted to lower-than-expected inflation data and the spring budget update.
Currency and Commodity Markets
US Dollar and Major Currencies
The US dollar strengthened, reaching a three-week high of 104.71 before settling at 104.46, driven by higher Treasury yields and uncertainty over new US auto tariffs.
- Euro: Hit a three-week low of $1.0731, then recovered slightly to $1.0762
- British Pound: Remained under pressure amid market caution
Oil Prices Climb
Oil prices rose today amid concerns over tighter global supply:
- Brent Crude: $73.86 per barrel
- WTI Crude: $69.75 per barrel
Analysts noted that while auto tariffs could increase vehicle prices and impact oil demand, they may also slow the shift to more fuel-efficient cars, potentially supporting crude consumption.
Equities on the Move
Analyst Notes and Company Announcements
- Microsoft: TD Cowen reported that Microsoft has cancelled and deferred data centre leases in the US and Europe, mainly due to a slowdown in OpenAI training workloads. Google and Meta are stepping in to fill the gap, while OpenAI is securing more third-party data centre space and planning its own long-term expansion.
Tesla Reacts to Tariff Impact
Elon Musk acknowledged that Tesla would be significantly affected by new 25% tariffs on foreign-made cars, as the company imports key components from China despite manufacturing its vehicles in the US. Tesla shares fell nearly 6%, adding to its struggles with declining European sales, increasing competition, and a consumer boycott over Musk’s alleged political ties.
Robinhood Launches New Banking Services
Robinhood Markets is launching Robinhood Banking, offering:
- Checking and savings accounts with a 4% annual percentage yield
- FDIC coverage up to $2.5 million (for Robinhood Gold subscribers)
Additional launches include:
- Robinhood Strategies: Personalised investment portfolios
- Robinhood Cortex: An AI-powered market analysis tool
Company Updates and Forecasts
OpenAI
- Does not expect its cash flow to turn positive until 2029
- Anticipates revenue will exceed $125 billion by then
- Forecasts $12.7 billion in revenue for 2025
- Has surpassed 2 million paying business users
BYD’s International Growth
BYD aims to double overseas sales to over 800,000 units by 2025, focusing on markets in:
- Britain
- Latin America
- Southeast Asia
It is expanding with new factories in:
- Brazil
- Thailand
- Hungary
- Turkey
Other Notable Movers
- Chewy: Reported stronger-than-expected Q4 core income, with net sales rising 14.9% YoY to $3.25 billion. Forecasts for Q1 and full year were modest, with analysts calling the guidance conservative.
- Oklo Inc.: Reported increased losses and no firm purchase agreements in Q4. Analysts criticised the earnings call and added Oklo to the Red Flag Focus List due to valuation concerns and lack of revenue.
- Porsche SE: Exploring long-term investments in defence and infrastructure but has no plans to sell shares in Volkswagen or Porsche AG. Proposed a lower dividend due to a drop in Volkswagen’s operating profits, while emphasising cost-cutting efforts.
- MFE-MediaForEurope: Controlled by the Berlusconi family, MFE is considering increasing its nearly 30% stake in ProSiebenSat.1. The company has secured €3.4 billion in financing for a potential takeover, with a decision expected before the May AGM.
- William Blair: Remains optimistic on Tesla despite auto-related challenges, citing strong momentum in the energy business, especially the faster-than-expected Megapack ramp-up. Believes Tesla will maintain leadership in autonomous driving.
- Ferrari Group: Analysts at Goldman Sachs and Jefferies initiated coverage, highlighting Ferrari’s strong position in the luxury logistics sector with 6–8% annual revenue growth potential, high margins, and robust cash flow. Risks include macroeconomic pressures and liquidity.
- Citi: Upgraded TotalEnergies from Neutral to Buy, raising its price target to €70. Cited strong growth in upstream business and unique exposure to the electricity sector, with expected 6% real cash flow growth through 2030.
- Evercore ISI: Raised Shell’s price target from $75 to $85, citing confidence in cost-efficiency and shareholder return strategy based on the company’s recent capital markets update.
- Jefferies: Downgraded ArcelorMittal to Hold (from Buy), maintaining a €33 price target, citing short-term uncertainty due to exposure to Mexico and Canada, and limited near-term upside.
Key Economic Releases to Watch
Today, investors will closely monitor important US economic data releases, including:
- GDP figures
- Initial jobless claims
- Pending home sales
These data points will offer additional insight into the health of the US economy and may impact near-term monetary policy expectations.
