Key Takeaways
- Stocks Plummet As Tariff Announcements Spark Global Market Sell-Off Concerns
- Nvidia And Dell Drop Amid AI Cost Worries And Market Weakness
- Gold And Bonds Rally, Signaling Investor Flight To Safety
It was an ugly day for stock on Thursday with the Nasdaq leading the way, dropping nearly 2.8%. The S&P 500 and Russell 2000 both dropped over 1.5% while the Dow Jones Industrial Average performed best, falling just under 0.5%. Volume was heavy across the board and the question now is, will Friday see more selling?
The selling on Thursday began when President Trump announced the tariffs he had postponed for Canada, Mexico and China would go into effect on March 4th. Canada and Mexico will be tariffed at 25%, while China will have an additional 10% tariff added to already existing tariffs. All three countries have said they would retaliate with tariffs of their own, raising the likelihood of an all-out economic calamity. The news took down not only U.S. stocks, but globally, stocks are significantly lower.
A number of companies reported earnings overnight. Shares of Dell are down 4% premarket after saying margins would come under pressure because of the cost of Artificial Intelligence (AI) chips. Speaking of AI, Nvidia’s stock is down over 11.5% for the week. Despite very strong earnings and a positive outlook, shares of the chipmaker were hit hard Thursday, falling 8.5% and are down close to 1% premarket. HP Inc. is also lower by 3% premarket after issuing a weaker than expected outlook. One stock that is up premarket is Monster Energy. The company surprised to the upside and its stock is higher by 2%.
An asset that has come under significant selling pressure recently is bitcoin. The crypto space had reason to be enthusiastic following the election of President Trump, who largely embraced the sector. However, after a strong rally leading into Trump’s inauguration, bitcoin has fallen around 25%, breaking below $80 thousand for the first time since November of last year.
Turning to economic news, this morning’s Personal Consumption Expenditures (PCE) report came in as expected. Forecasts called for Core PCE, which excludes food and energy, to be up 2.6% from last year and 0.3% month-over-month according to Bloomberg. If we include food and energy, PCE was also in line with expectations of yearly and monthly forecasts of 2.5% and 0.3%, respectively. One other report out this morning, Personal Spending, unexpectedly dropped. That report was expected to show an increase of 0.2%; however, it came in -0.2%. We have seen some other reports recently reflecting a pessimistic outlook by consumers and this spending report may be a reflection of that.
Heading into the last day of the month, the S&P 500 is on track for its worst performance since April. Gold prices are up nearly 10% for the year and just recently, we’ve seen interest rates fall as bonds staged a rally. I think when you look at both gold and bonds together, they suggest a flight to safety because of an uncertain outlook. The tariff war is likely to raise prices for consumers, which could prove inflationary. I believe that is why gold is rallying. The rally in bonds and resultant drop in interest rates is, in my opinion, a sector rotation out of equities. Anecdotally, I believe this is why people like Warren Buffett have been selling equities and building up their cash reserves.
For today, one question I have is whether or not yesterday’s selling will spill over into today. I’ve mentioned before that I believe traders are reluctant to carry risk into the weekend. The potential for some sort of policy announcement is being perceived as high and no one wants that weekend exposure. In premarket, futures are up slightly, however, volatility is as well. A theme we’re seeing of late is early morning strength followed by significant selling. The VIX is sitting above 20, which suggests to me, the premarket gains are vulnerable. With volatility higher, that means the prices of options are more expensive. For investors holding stock and looking for protection, something like a covered call might be an appealing strategy. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.