US Stocks Fall, Bonds Rise On Mixed Economic Signals: Markets Wrap

US stocks fell and bonds rose after data that showed a pick-up in inflation and weaker-than-estimated spending, underscoring the Federal Reserve’s challenges in navigating the current economic environment.

Equity futures pared declines on news the European Union is identifying concessions it’s willing to make to the US to secure the partial removal of tariffs that have already started hitting the bloc’s exports and that are set to increase after April 2. The S&P 500 was still set for a third straight day of losses. Treasury yields dropped, with the slide led by longer-dated bonds. The dollar wavered. Gold traded at an all-time high.

Inflation-adjusted consumer spending edged up 0.1% after falling in January by the most in nearly four years. The so-called core personal consumption expenditures price index, which excludes food and energy items, rose 0.4% from January, the most in a year. From a year ago, the core PCE advanced 2.8%. Both were slightly above economists’ forecasts.

“Today’s data has the general pattern of what many observers will be looking for in the months ahead as new tariffs and other policy change begin to bite: weaker-than-expected spending and stronger-than-expected inflation,” said David Alcaly at Lazard Asset Management. 

Alcaly notes that Much remains uncertain and it’s premature to be drawing judgments about impacts, but seeing this pattern in hard data and not just surveys could feed apprehension before next week’s announcements.

Fed officials left rates unchanged last week for a second straight meeting. Policymakers have said borrowing costs are well positioned to wait for greater clarity on the economic impact of President Donald Trump’s policy changes, including trade and immigration. Trump this week announced a 25% tariff on auto imports and is promising a bevy of reciprocal tariffs on April 2.

Bret Kenwell at eToro: The report isn’t devastating, but given the current economic uncertainty and market volatility, investors were looking for reassurance in this report — not something to fan the flames.Historically speaking, the S&P 500 tends to perform pretty well in mild inflationary environments where annual core PCE is between 2% and 4%. But investors don’t seem to care about historical statistics right now. Instead, their main concern centers around the Fed’s maneuverability. Specifically, will they be able to cut rates amid an economic slowdown if inflation has yet to move lower?That’s the biggest worry: That inflation will remain elevated amid a notable slowdown in the economy. And while that risk may not be the base case right now, any traction it gains could further weigh on investor sentiment. But unless there’s a larger deterioration in the economy, it’s too soon to jump on the stagflation train.

Neil Dutta at Renaissance Macro Research: Consumers are resistant to price increases. That’s what February’s personal income and spending report demonstrates. Core inflation firmed and real consumption remains soft.Looking ahead, one thing that worries me is an increase in the personal saving rate. Stock markets have been shaky. The rise in housing inventory will weigh on home prices. And, consumers are more concerned about their jobs prospects. Much of the growth in consumers’ spending in 2024 was driven by a drop in the saving rate. There is no reason to expect this to continue.Maybe bonds are sniffing out what a Fed on hold implies in this environment.

Paul Toft at Key Private Bank: This morning’s upside surprise is more evidence that The Fed’s inflation fight appears to have stalled out near the 3% range, short of their well-publicized goal of 2%. With new tariffs expected to come online next week, along with the auto tariffs announced this week, the Fed will be even slower to cut rates at their next few meetings as the tariffs will most likely be somewhat inflationary.Today’s PCE number is a gadfly to those Fed members who are itching to cut rates at one of the next two meetings.  Inflation appears stuck in the 3% neighborhood – Next week’s tariffs could make it worse.

David Russell at TradeStation: Core PCE was higher than expected, and it might be hard to go lower from here because incomes are high and tariffs are coming. We might be looking at the last remnants of the old economy before inflation expectations are permanently reset upward. This might be the opposite of Goldilocks, with incomes and inflation too high for the Fed to lower rates very much. Meanwhile, prospects for growth and profit margins are dimming.

Ellen Zentner at Morgan Stanley Wealth Management: It looks like a “wait-and-see” Fed still has more waiting to do. Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.

Dan Siluk at Janus Henderson: Such resilience in core inflation, persistently above the Federal Reserve’s target, suggests expectations for a shift in monetary policy may need to be recalibrated, potentially affecting the timing of interest rate adjustments. As the market digests these figures, all eyes will be on the upcoming April 2 Tariff Day, which represents the next significant event risk for investors. Even then, it is anticipated that this will likely pose more questions than provide answers, adding another layer of uncertainty in an already complex economic environment.

Robert Ruggirello at Brave Eagle Wealth Management: Friday’s PCE print was slightly stronger-than-expected and suggests that inflation still remains sticky, despite signs of softening in recent months. Friday’s data is for February and doesn’t account for the expected uptick in inflation from tariffs. While tariffs are likely to add a one-off shock to inflation, it remains very unclear on how long the tariffs will last, as it’s very possible that a future trade deal leads to reduced or even no tariffs. The tariff questions add lots of uncertainty to the inflation outlook.

Fed Bank of Boston President Susan Collins said late Thursday that it looks “inevitable” that tariffs will boost inflation, at least in the near term. Her Richmond counterpart Tom Barkin noted that rapid policy changes have created “a sense of instability” in the business community, and the associated decline in sentiment could “quiet demand.”

Economists dialed back their expectations for US growth this year, envisioning softer consumer spending and more limited capital investment amid mounting uncertainty created by the Trump administration’s ever-evolving trade policy.

Gross domestic product is now set to grow 2% in 2025, according to the latest Bloomberg survey of economists, down from the 2.3% estimate in last month’s poll. Their projection for first-quarter growth was marked down a full percentage point to 1.2%.

Inflation, meanwhile, will stay above the Fed’s 2% goal — with a key gauge finishing the year at 2.8% instead of the previous 2.5% projection — and keep the central bank cautious about additional interest-rate reductions.

In corporate news, CoreWeave Inc. raised $1.5 billion in its IPO, a downsized deal that reflects how market volatility is hurting demand. United States Steel Corp. rallied on a report that Nippon Steel Corp. is considering investing as much as $7 billion to upgrade the American firm’s facilities if it wins approval for its proposed takeover. Lululemon Athletica Inc., a yogawear brand, delivered a disappointing outlook.

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 9:19 a.m. New York time

• Nasdaq 100 futures fell 0.2%

• Futures on the Dow Jones Industrial Average fell 0.1%

• The Stoxx Europe 600 fell 0.3%

• The MSCI World Index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0798

• The British pound was little changed at $1.2956

• The Japanese yen rose 0.2% to 150.68 per dollar

Cryptocurrencies

• Bitcoin fell 2.1% to $85,456.37

• Ether fell 5.4% to $1,898.62

Bonds

• The yield on 10-year Treasuries declined five basis points to 4.31%

• Germany’s 10-year yield declined three basis points to 2.74%

• Britain’s 10-year yield declined seven basis points to 4.71%

Commodities

• West Texas Intermediate crude fell 0.1% to $69.82 a barrel

• Spot gold rose 0.5% to $3,072.75 an ounce

It’s been a rough quarter for US equities, with the S&P 500 getting ready to close out the first three months of the year with a 3.2% loss, the worst performance since 2023. 

Fed Bank of Boston President Susan Collins said tariffs will likely cause price pressures in the near term, but it was unclear how long that would last. Money markets have added to bets this week on more Federal Reserve cuts and are now split on between two and three reductions by year-end.  

The tariff threat has also jolted commodity markets this week. Copper prices in London sank for a third day, sliding further below $10,000 a ton. The metal is heading for a weekly drop after Bloomberg reported the US administration aims to introduce tariffs on copper imports within weeks, instead of months as had been widely anticipated. 

Meanwhile in Europe, the Stoxx 600 index slipped 0.4% on Friday. Banks are the standout winner this quarter with a 26% advance as investors are counting on more strong earnings, share buybacks and M&A to drive gains. 

A global selloff in equities extended into a third day as concerns about upcoming US tariffs and a widening trade war weighed on investor risk appetite. Gold jumped to a record on demand for safe havens.

The MSCI World Index had its longest losing streak in a month while a regional gauge of Asian equities was poised for its biggest drop since Feb. 28. Cryptocurrencies retreated and yields on the 10-year US Treasury fell slightly. Equity-index futures for Europe showed stocks may be under pressure while contracts for US edged lower. The dollar was little changed.

From New York to London and Hong Kong, investors are cutting back risk ahead of President Donald Trump’s plan to announce so-called ‘reciprocal tariffs’ on April 2, after slapping levies on imports of all automobiles into the country. Traders, already wary of how the moves will impact inflation and growth in the US economy, are chalking up different strategies to deal with the situation.

“It is a fool’s errand to try and predict what Trump will do,” said Aberdeen Investments’ Singapore-based Xin-Yao Ng. But the plan is “to make sure we are invested in companies where their own destiny isn’t as affected by tariff decisions. Then we take advantage of volatility, if any, to bargain hunt if there is meaningful weakness.”