Stock Markets React to Trade Uncertainty but End the Week on a Positive Note

Markets experienced slight declines on Friday as investors weighed the latest developments in global trade policy. While stocks opened lower, Wall Street remained on track for a positive week overall. The uncertainty stemmed from President Donald Trump’s latest memorandum on tariffs, leading to mixed reactions among investors and global markets.

A Volatile Market Responds to Tariff Concerns

Stock futures weakened as traders processed Trump’s tariff policy. The S&P 500 futures slipped 0.1%, the Dow Jones Industrial Average dropped by 120 points (0.3%), and Nasdaq 100 futures edged down 0.1%. Despite these declines, stocks had risen earlier in the week due to optimism surrounding inflation data and the possibility of delayed tariff implementations.

A significant market driver was Trump’s announcement regarding reciprocal tariffs, aimed at countries imposing taxes on U.S. goods. Rather than enacting immediate tariffs, he directed Commerce Secretary nominee Howard Lutnick to assess potential trade penalties. This decision helped stocks rise on Thursday as investors responded favorably to a more measured approach.

Positive Inflation Data Offers Some Relief

Recent inflation data provided a slightly positive outlook, showing slower-than-expected price pressures. Investors welcomed January’s Producer Price Index (PPI) and the latest Consumer Price Index (CPI) results, which suggested that inflation could be cooling. Eyes are now on the upcoming Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, which could further influence market sentiment.

Despite the encouraging data, some analysts cautioned against overconfidence. Mark Malek, Chief Investment Officer at Siebert, expressed skepticism. “There’s no clear stimulus for the market to rally like this,” he noted, emphasizing the lingering uncertainty regarding Trump’s trade policies.

Global Markets React Differently

International markets showed mixed reactions to Trump’s tariff stance. Hong Kong’s Hang Seng Index responded positively, surging by 3.48% and securing its most substantial weekly gain since October 2024. China’s CSI 300 also advanced 0.87%, while South Korean stocks recorded slight gains.

Meanwhile, Japan’s Nikkei 225 declined by 0.79%, and India’s Nifty 50 and BSE Sensex fell by approximately 0.82% and 0.83%, respectively, as choppy trading weighed on regional markets.

Investor Sentiment Shifts

Market uncertainty was reflected in the latest AAII Investor Sentiment Survey. Bearish sentiment climbed to 47.3%, its highest level since November 2023, while bullish sentiment fell to 28.4%. A significant portion of investors cited concerns about tariffs:

– 57.4% believe tariffs will slow economic growth and drive prices higher.
– Only 12.5% think tariffs will ultimately strengthen the U.S. economy.

Despite these concerns, major U.S. stock indexes remained on track for weekly gains. The S&P 500 increased 1.5%, the Dow Jones rose 0.9%, and the Nasdaq climbed 2.2%.

Notable After-Hours Stock Moves

Several major stocks experienced sizable after-hours movements:

– GameStop surged 7% following reports that the company was exploring investments in Bitcoin and other cryptocurrencies.
– Coinbase gained 1% after posting stronger-than-expected fourth-quarter earnings.
– Airbnb jumped 12% after exceeding Wall Street expectations, reporting earnings of 73 cents per share versus an anticipated 58 cents and achieving revenue of $2.48 billion compared to the estimated $2.42 billion.

Looking Ahead

While markets faced uncertainty due to tariff discussions, major indexes still posted weekly gains. Investors now turn their attention to upcoming inflation reports and the Federal Reserve’s response, which could influence financial markets in the coming weeks.

As Howard Lutnick begins reviewing potential trade policies, market participants will closely monitor how new regulations might affect global commerce. While short-term volatility is expected, whether the rally continues will ultimately depend on economic data and policy decisions. For now, the markets remain in a phase of cautious optimism.