Economy, Tariff Uncertainty, Declining Consumer Sentiment Roil Markets

President Trump’s new tariff threats, coupled with the Federal Reserve’s cautious stance on interest rates and declining economic indicators, sparked investor concerns leading to significant market volatility and weakened consumer sentiment.

On Tuesday, President Trump reignited global trade tensions by announcing potential 25% tariffs on automobiles, semiconductors, and pharmaceuticals, set to take effect on April 2. The latest tariff threat follows last week’s announcement of 25% global tariff on steel and aluminum, effective March 12, along with an order for federal agencies to study reciprocal tariffs on trading partners. Additionally, 25% tariffs on Mexico and Canada are expected next month, while 10% duties on China have already been implemented[1][2][3].

The minutes from the Federal Reserve’s January meeting, released on Wednesday, signaled a cautious stance on interest rates. Officials emphasized the need for further progress in curbing inflation before considering any adjustments, provided the economy remains near maximum employment. This pause from the Fed suggests that borrowing costs for mortgages, auto loans, and credit cards will likely remain elevated[4][5].

Market volatility surged this week, culminating in the worst trading day of 2025 on Friday. The S&P 500 and Dow Jones each fell 1.7%, while the NASDAQ declined 2.2%, pressured by economic data and corporate earnings that deepened investor concerns[6][7]. Walmart’s earnings report, despite a strong quarter, projected a cautious outlook, raising concerns about consumer spending amid inflation and potential tariffs. The retailer expects revenue growth this year and highlighted its ability to manage tariff impacts, but its profit outlook weighed on retail stocks[8][9].

Broader economic concerns also pressured markets after The Conference Board’s Leading Economic Index unexpectedly declined 0.3% in January, reversing December’s 0.1% gain and missing expectations of a 0.1% drop. The decline was driven by a 0.1% dip in consumer expectations for business conditions and a 0.2% decrease in average weekly hours. Despite this, Conference Board economists still project 2.3% GDP growth in 2025[10]. Treasury yields fell, while bank stocks, including Goldman Sachs and Morgan Stanley, declined[11].

Adding to the downdraft, weaker consumer sentiment and declining home sales further eroded investor confidence. On Friday, the University of Michigan’s Consumer Sentiment Index was revised sharply lower to 64.7 in February from a preliminary 67.8, marking its lowest level since November 2023. The current conditions gauge fell to 65.7 from 68.7, while the expectations subindex dropped to 64 from 67.3. Sentiment weakened across all age, income, and wealth groups, led by a 19% plunge in durable goods buying conditions amid fears of impending tariff-driven price increases. Expectations for personal finances and the short-term economic outlook declined nearly 10%, while the long-term outlook dropped about 6%, reaching its lowest level since November 2023[12][13].

[1] https://www.reuters.com/business/autos-transportation/trump-auto-tariff-rate-will-be-around-25-2025-02-18/

[2] https://www.bloomberg.com/news/articles/2025-02-20/trump-tariffs-how-they-work-who-pays-them-their-economic-impact

[3] https://www.cnn.com/2025/02/19/economy/us-new-tariff-plans-trump-intl-hnk/index.html

[4] https://apnews.com/article/federal-reserve-minutes-inflation-ad359f208bdf9d3861768e748f9330b7

[5] https://www.cnbc.com/2025/02/19/fed-minutes-january-2025-.html

[6] https://www.nbcnews.com/business/markets/dow-drops-700-points-worst-day-2025-far-new-fears-economic-growth-rcna193256

[7] https://www.barrons.com/livecoverage/stock-market-today-022125

[8] https://www.nbcnews.com/business/markets/dow-drops-700-points-worst-day-2025-far-new-fears-economic-growth-rcna193256

[9] https://www.reuters.com/business/retail-consumer/walmart-forecasts-sales-fiscal-2026-revenue-below-estimates-cautious-spending-2025-02-20/’

[10] https://www.prnewswire.com/news-releases/the-conference-board-leading-economic-index-lei-for-the-us-declined-in-january-302381498.html

[11] https://www.nbcnewyork.com/news/business/money-report/sp-500-futures-inch-lower-after-index-notches-fresh-all-time-high-and-record-close-live-updates/6156567/?os=rokuzoazxzms&ref=app

[12] https://www.reuters.com/markets/us/us-consumer-sentiment-plunges-february-tariff-worries-2025-02-21/

[13] https://www.bloomberg.com/news/articles/2025-02-21/us-consumer-sentiment-drops-as-long-run-inflation-views-rise