Inflation Surprises and Trade Tensions Drive Markets Lower for the Week

What began as a hopeful attempt at back-to-back weekly gains quickly turned sour on Friday, as stronger-than-expected inflation data and renewed tariff concerns pushed stocks sharply downward.

Investors had grown somewhat comfortable with inflation trends showing signs of cooling, but Friday's release of the Personal Consumption Expenditures (PCE) index disrupted that narrative. Core PCE rose 0.4% month-over-month—its largest increase since January—bringing the year-over-year figure to 2.8%. Both numbers came in 0.1% above expectations, while the headline figures matched forecasts.

Adding to the inflation anxiety, the University of Michigan reported that consumer inflation expectations for the next year climbed to 5% in March from 4.3% in February, marking the highest level since November 2022. Longer-term expectations (5-10 years) also increased to 4.1% from 3.5%.

Consumer sentiment took a hit as well, falling nearly 12% to a reading of 57 in March. This aligns with Tuesday’s Conference Board report, which showed a dip in consumer confidence to 92.9 from 100.1.

Markets responded with a sharp sell-off. The NASDAQ dropped 2.7%, or around 481 points, closing at 17,322.99. Tech giants were hit hard, with Alphabet (-4.9%), Meta Platforms (-4.3%), and Amazon (-4.3%) all sliding. Tesla fell 3.5% but managed a nearly 6% gain for the week overall.

The S&P 500 fell 1.97% to 5,580.94, and the Dow Jones shed 1.69%—roughly 715 points—closing at 41,583.90.

While this pullback may be discouraging, market corrections of this magnitude often lay the groundwork for future buying opportunities. Quick, steep declines can signal potential reversals, particularly when bearish sentiment reaches historically extreme levels.

Earlier this week, stocks had surged on Monday as investors reacted positively to speculation that the administration might ease up on proposed tariffs. However, Wednesday’s announcement of auto tariffs and Friday’s inflation data undermined that optimism.

The NASDAQ ended the week down 2.7%, the S&P fell 1.6%, and the Dow slipped nearly 1%. Investors now look ahead to a critical week ahead, as March and Q1 come to a close.

Next week could bring a decisive shift. All eyes will be on the scheduled implementation of new tariffs on April 2. Investors are watching closely for clarity or policy shifts, which could stabilize sentiment. Even incremental insight might help ease uncertainty.

Also on the radar is Friday’s nonfarm payrolls report. With inflation ticking up, the labor market data will take on added significance as investors assess the broader economic outlook. The previous report showed 151,000 jobs added—below expectations of 160K to 170K—but still enough to push markets higher at the time.

Other economic highlights include construction spending, ISM Manufacturing, and job openings on Tuesday; ADP Employment on Wednesday; and ISM Services on Thursday.

Weekly Market Recap

Friday’s downturn was driven by rising inflation concerns, which have delayed the Federal Reserve’s timeline for rate cuts. The recent PCE data reinforced the challenge of bringing inflation back toward target levels.

Market volatility remains elevated, and the downward momentum suggests further downside is possible in the short term. However, this phase could also present a valuable setup for long-term investors once selling pressure subsides.

Bearish sentiment among individual investors remains high. According to the American Association of Individual Investors (AAII), bearish readings have exceeded 50% for five straight weeks—something seen only twice before, in October 1990 and during the 2022 bear market lows. History suggests that such extremes often precede meaningful market bottoms.

Major indices continue to retest recent lows, with sharp declines across the board: NASDAQ (-2.7%), S&P 500 (-1.97%), and Dow (-1.69%).

Market breadth was weak, as declining stocks outnumbered gainers on both the NYSE and Nasdaq. Sector-wise, utilities outperformed while communication services lagged. Trading volume was mixed compared to Thursday’s levels.

Other Market Moves

• 10-Year Treasury Yield: Fell 11.4 basis points to 4.255%.

• Oil: WTI crude dropped 1.04%, trading near $79/barrel.

• Gold: Rose 0.85%, reaching an all-time high of $3,117/oz.

  
  

Economic Outlook

The elevated PCE numbers complicate the Fed’s efforts to begin cutting rates and signal that the inflation fight is not yet over. Investors will need to remain nimble and closely monitor upcoming data to assess where the market goes from here.