The stock market reached near-record levels as the dollar fell following President Donald Trump’s decision to impose tariffs—but with a delayed start.
The S&P 500 rose by 1%, with all major sectors seeing gains. Meanwhile, the US dollar weakened against all major currencies. Treasury bonds rebounded after their largest decline since December. Tech stocks saw strong performance, with Tesla Inc. and Nvidia Corp. both rising over 3%. Apple Inc. gained 2% after CEO Tim Cook announced a new product release on February 19. Meta Platforms Inc. extended its rally, marking a 19th consecutive day of gains.
Tariff Announcement and Its Impact
President Trump signed a directive to impose new tariffs on a country-by-country basis. However, the process is expected to take time, with studies scheduled to be completed by April 1. Trump could take action immediately after that, according to Howard Lutnick, his nominee for Commerce Secretary.
The delay in imposing tariffs is being viewed by some as a negotiation tactic, rather than a firm decision to proceed with the levies. Analysts believe Trump’s approach could be an effort to open discussions with global trade partners, similar to tactics used with Mexico and Canada.
Jose Torres at Interactive Brokers highlighted that investors might not take Trump’s rhetoric seriously, as it appears more focused on negotiations than concrete action. Ian Lyngen at BMO Capital Markets suggested that the delay leaves room for trade partners to propose counteroffers, adding complexity to the situation.
Inflation Data and Market Reactions
Despite stronger-than-expected inflation data, Wall Street traders remained optimistic. The January producer price index (PPI) rose more than anticipated. However, components that influence the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, showed more favorable signs, with declines in healthcare and airfare prices. The next PCE report is due on February 28.
The S&P 500 surpassed the 6,100 mark, and the Nasdaq 100 increased by 1.4%. The Dow Jones Industrial Average rose 0.8%. The Russell 2000, which tracks smaller companies, gained 1.2%. In after-hours trading, Applied Materials Inc. gave a cautious revenue forecast, while Airbnb Inc. provided an optimistic outlook.
Dollar Decline and Future Outlook
The yield on 10-year Treasury bonds fell by nine basis points to 4.53%. The Bloomberg Dollar Spot Index lost 0.7%, while the yen gained 1.1% as investors sought safer assets. The Canadian dollar reached its highest point of the year.
While the dollar weakened in the short term, analysts remain positive on its long-term outlook. Ryan Grabinski of Strategas noted that fewer expected interest rate cuts in the US, combined with rate cuts in other countries, may help maintain the dollar’s strength. A stronger dollar tends to benefit US domestic equities, while a weaker dollar supports emerging markets and international equities.
Grabinski also pointed out that technology and materials sectors—both of which generate a significant portion of their revenue overseas—are most sensitive to changes in the dollar. Conversely, the utilities sector, with minimal foreign revenue exposure, is less affected by currency fluctuations.
Market Outlook and Bearish Sentiment
Goldman Sachs’ Scott Rubner warned of a potential bearish shift in the US stock market. He noted that the market is becoming increasingly crowded, with retail traders, 401k inflows, and corporate activity driving demand. However, Rubner believes that the dip-buying trend is losing momentum, and a negative turn could be approaching in the near future.
He cautioned that the changing flow dynamics and upcoming seasonal factors may signal a shift in market sentiment. Rubner called this his “last bullish email” for the first quarter of 2025, reflecting a more cautious outlook for the immediate future.
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