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Market Update: Wall Street Faces Turbulent Times Amid Rising Tariff Concerns
This week, Wall Street has experienced significant volatility, with the S&P 500 and Nasdaq poised for another challenging closing session, each down nearly 6%. Accumulated losses for the week have reached approximately 9% for the S&P and 10% for the Nasdaq. The markets briefly rallied following remarks from President Donald Trump regarding Vietnam’s interest in negotiating tariff reductions. This implies a potential openness from the Trump administration to consider tariff agreements that could alleviate some pressures contributing to the current market downturn.
However, optimism faded quickly after Federal Reserve Chairman Jerome Powell delivered a speech in Virginia that many market participants found insufficiently dovish. Powell characterized the current tariffs as “significantly larger than expected,” warning that their consequences would likely lead to “higher inflation and slower growth” for the economy. As the market had geared up for a potential 25 basis point rate cut at the Fed’s June meeting, along with expectations for at least three additional cuts by year-end, Powell’s comments were not the reassurances investors desired.
Housing Market Shows Resilience
In the midst of Friday’s tumultuous trading day, the housing sector emerged as a noteworthy bright spot. Stocks of homebuilders and companies associated with increased housing activity, such as Home Depot, outperformed their broader market counterparts. This resilience can be attributed to falling bond yields, which have declined for two consecutive days as investors seek safety amid tariff uncertainties. Lower borrowing costs are expected to invigorate a housing market previously stifled by high mortgage rates.
During the more intense selloff on Thursday, homebuilder shares, along with major home improvement retailers, suffered losses due to increasing recession fears. However, the yield on the 10-year Treasury bond, which significantly impacts borrowing costs, reached its lowest level since October, slightly exceeding 4%. On Friday, as yields dipped below 4%, investors began to recognize the potential advantages of lower rates for the housing sector.
Notably, the 30-year fixed mortgage rate has also declined to approximately 6.55%, down from 6.79% the previous week, and significantly lower than earlier highs of over 7.2% recorded in January. Executives at Home Depot have identified the 6.5% threshold as pivotal, historically aligning with increased housing market activity. Despite the positive shift in bond yields, it is essential to note that recovery in the housing market will not happen instantaneously, given the looming risks associated with Trump’s proposed tariffs, which are expected to come into effect next week.
Investor Sentiment and Housing Demand
The current economic landscape poses challenges, particularly with a weakening consumer base; however, there remains substantial pent-up demand for home purchases. The recent gains in homebuilder stocks and major retailers like Home Depot and Lowe’s on Friday indicate a growing belief among investors that this demand might finally materialize.
Looking Ahead
As we approach the weekend, the most critical factor to monitor will be international reactions to the tariffs and the willingness of various countries to engage in discussions with the United States. We will also observe whether corporations can negotiate with the Trump administration for tariff exemptions in exchange for commitments to invest domestically.
On the data front, inflation statistics will take center stage, with the March Consumer Price Index (CPI) and Producer Price Index (PPI) reports expected next week. Additionally, significant earnings announcements will be forthcoming from major companies, including Levi’s, Delta Air Lines, Constellation Brands, CarMax, and a series of bank earnings on Friday, featuring key players like Wells Fargo and BlackRock.
Source
www.cnbc.com