A Friday rally can’t hide the fact that the stock market is stuck in an ominous pattern—and it’s not clear what will shake it out.
Indexes notched their worst weekly performances in months as markets were whipsawed on tariff news. The S&P 500 rose 0.6% on Friday but fell 3.1% on the week, its worst weekly showing since September. It’s now down 1.9% for the year. The Dow Jones Industrial Average fell 2.4%, and the Nasdaq Composite dropped 3.5%.
The biggest problem is uncertain federal policy, which appears to be causing many businesses to hold off on making investment decisions. President Donald Trump imposed tariffs on Canada, Mexico, and China before backtracking on some of the penalties and then promising even more to come.
The word “uncertainty” came up 47 times this week in the Federal Reserve’s latest Beige Book, which gathers evidence on economic conditions around the country—about three times as often as it was mentioned in January.
The good news is that the economy is holding up relatively well. On Friday, the Labor Department said that 151,000 jobs were added in February, below economists’ expectations but not by much. In a speech in New York on Friday, Federal Reserve Chair Jerome Powell reassured investors that the economy is in a “good place.”
Investors, however, are behaving as if things are about to get much worse. U.S. Treasury yields are coming down, caused by “worries about signs of slowing U.S. growth,” according to investment managers at Janus Henderson Investors. The yield on the 10-year Treasury ended the week at 4.3%, after rising above 4.8% as recently as January. And there were areas of concern in the jobs report, including a jump in the number of people working part-time for economic reasons. It could be a red flag for the economy if employers are relying on part-time workers instead of filing more full-time slots.
Some investors are rotating into the kinds of companies that do well when times are tough. The market’s few winners this past week included flight-to-safety stocks like discount chain Dollar General, a Barron’s stock pick, and Colgate Palmolive. Dollar General, whose low prices tend to attract savings-minded shoppers, rose 11% on the week.
While consumer staples are ascendant, the market’s prior winners have been fading. The tech sector tumbled and even slid into correction on Thursday, down more than 10% from its December highs. Among the week’s laggards were Meta Platforms, fresh off a 20-day winning streak in February. The artificial-intelligence trade has been particularly vulnerable: Investors sold off AI chipmaker Marvell Technology even after it posted decent earnings.
Trump’s policies have given a boost to markets outside the U.S., causing some on Wall Street to quip that MAGA has been replaced by MEGA—Make Europe Great Again. Indexes like Germany’s DAX have been on the upswing, and Ronald Temple, chief market strategist at Lazard, believes that outperformance could continue as U.S. stocks face tariff-related weakness.
“[U.S.] Markets have just begun to digest the potential negative impacts of trade policy uncertainty and are likely to remain vulnerable to additional downside,” he wrote in an email to Barron’s. “[There’s] a world of opportunity outside of the United States where valuations are considerably less demanding and upside might be underappreciated.”
But for how long?
Write to Avi Salzman at avi.salzman@barrons.com
