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Despite some positive developments regarding U.S. inflation, investor anxiety persists, largely driven by the potential escalation of a global trade conflict.
U.S. stocks opened lower as investors reacted to a recent announcement from President Trump, who indicated on Thursday plans to impose a 200% tariff on European Union imports of wine, champagne, and other alcoholic drinks. This proposed move comes in response to the EU’s decision to increase tariffs on American whiskey to 50%. The EU’s actions are a countermeasure against the newly implemented U.S. tariffs on foreign steel and aluminum, which came into effect on Wednesday.
Equity analyst Adam Crisafulli from Vital Knowledge noted in a research report that the consistent threat of trade retaliation is overshadowing any positive economic news, stating, “Trump’s trade agenda is dominating everything, and until there is a cessation in the daily escalation of threats and retaliation, stocks will struggle to rally.”
As trading commenced, the S&P 500 fell 40 points, or 0.7%, settling at 5,559. The Dow Jones Industrial Average experienced a drop of 208 points, approximately 0.5%, and the Nasdaq Composite saw a decline of 1.4%.
After peaking in February, following an upswing related to Trump’s re-election in November, the S&P 500 has since retraced those gains, showing a decline of about 5% year-to-date. Meanwhile, the Dow and Nasdaq have also experienced losses of 3% and 9%, respectively, since January.
Factors Behind February’s Cooling Inflation
Recent uncertainties surrounding the White House’s aggressive trade stance and growing worries over the U.S. economic growth are often seen as overshadowing the latest indications that inflation may be softening. Data from February revealed a slight dip in consumer costs, as reported by the Consumer Price Index earlier this week.
John Canavan, lead U.S. analyst at Oxford Economics, explained, “The limited market reaction to this week’s CPI report can be attributed to rising concerns about the overall health of the U.S. economy, which have shifted focus away from potential inflation risks tied to Trump’s tariff initiatives.”
Currently, Wall Street analysts largely see minimal risk of an imminent recession, pointing out that the job market remains robust. However, various indicators suggest the economy is starting to lose steam, including declining corporate earnings, diminishing consumer confidence, and sluggish retail sales.
The possibility of slowing growth, combined with persistently high prices for essential goods such as food and rent, has led to fears of “stagflation,” a scenario where economic activity declines even as inflation remains elevated.
This intricate economic landscape presents challenges for policymakers at the Federal Reserve, who are tasked with managing inflation while ensuring economic stability. Analysts at Morgan Stanley forecasted on Thursday that the Federal Reserve is likely to maintain its current benchmark interest rate during its upcoming meeting scheduled for March 18-19.
They noted, “The core messaging from the January meeting, where Chair Jerome Powell stated that the Fed is ‘not in a hurry’ to change policy, is expected to remain consistent in March.”
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Alain Sherter is a senior managing editor at CBS News, specializing in business, economics, and workplace topics for CBS MoneyWatch.
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