Daily market snapshot

• Stocks surge on tariff relief for automakers: Equity markets finished higher on Wednesday following an announcement that the U.S. will exempt autos from the 25% tariffs that were implemented yesterday on imports from Canada and Mexico for one month. The tariff relief provided a boost to sentiment, with the S&P 500 finishing higher by 1.1% while the Nasdaq posted a 1.5% gain.* Overseas, stocks in Asia were higher overnight, while markets in Europe surged following news that Germany will exempt military and defense spending from its strict fiscal-spending rules, allowing the country to increase its defense spending. Additionally, Germany announced plans to launch a 500 billion euro fund to finance infrastructure spending.* The German parliament is expected to vote on these measures next week. It was a busy day on the economic calendar, with the ADP private-employment survey showing that private payrolls rose by 77,000 in February, below expectations of roughly 145,000.* Additionally, the ISM Services PMI rose to 53.5 in February, above expectations, signaling that the services sector of the U.S. economy appears to be holding up, despite a string of softer-than-expected economic data over recent weeks.* Bond yields finished the day higher, with the 10-year Treasury yield closing around 4.28%.* 
   
• Trade uncertainty is an overhang, but fundamentals remain supportive: Trade policy uncertainty has stoked bouts of volatility in equity markets this year, first in early February and again yesterday, as the U.S. imposed 25% tariffs on goods imported from Canada and Mexico (Canadian energy imports are subject to a 10% tariff). An additional 10% tariff on goods imported from China was implemented as well, adding to the 10% tariff that was imposed in February. Canada and China announced retaliatory measures, while Mexico pledged to retaliate by March 9. The future path of trade policy is a known unknown, and we expect trade-policy uncertainty to remain in the headlines, potentially stoking bouts of volatility as the year progresses. Despite the uncertainty, we believe the fundamental backdrop remains supportive. S&P 500 earnings are on pace to grow by roughly 18% in the fourth quarter, the strongest growth since the fourth quarter of 2021.* Strong earnings momentum is expected to continue into 2025, with estimates calling for roughly 12% growth.* Additionally, labor-market conditions remain broadly supportive, while household inflation-adjusted incomes are growing, which should support spending. In our view, sustained tariffs would create a moderate but manageable headwind to U.S. economic growth. We recommend investors resist the urge to react to headlines and instead maintain well-diversified portfolios aligned to their goals. 
   
• ADP private-payroll growth lower than expected: The ADP private-employment survey showed that U.S. private employers added 77,000 jobs in February, below economist expectations for 145,000 and below the prior month's reading of 186,000.* The slowdown in hiring likely reflects a combination of policy uncertainty and signs of slowing economic growth over recent weeks, potentially leading business owners to delay hiring plans. In our view, we could see the U.S. economy go through a soft patch in the first half of the year; however, we believe the fundamental backdrop remains supportive. Corporate profits are rising, and labor-market conditions remain broadly supportive despite today's softer-than-expected report, which should provide support to the economy and markets in 2025. Economist estimates are calling for real GDP growth in 2025 of 2.2%, modestly above estimates of long-term trend growth of roughly 2%.* Looking ahead, labor-market data will remain in the spotlight this week with the release of nonfarm payrolls and the unemployment rate on Friday. Expectations are for nonfarm payrolls to rise by 160,000 in February, while the unemployment rate is expected to hold steady at 4%.* 
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet}
 

• Stocks close lower amid new tariffs: Equity markets closed lower in a volatile trading session on Tuesday, as new U.S. tariffs took effect. Sectors were broadly lower, with financial and industrial stocks leading to the downside. In international markets, Asia dropped as China announced new tariffs on U.S. agricultural products, raising concerns of escalating trade tensions. Europe was down as well, with automakers posting the largest declines. The U.S. dollar dropped versus major currencies. In the commodity space, WTI oil traded lower, as OPEC remains on track to boost output in April and as new U.S. tariffs were implemented on Canadian oil*.
   
• U.S. tariffs on Canada, Mexico and China now in effect: U.S. tariffs of 25% on goods imports from Canada and Mexico, with the exception of Canadian oil and gas that will be taxed at 10%, and an additional 10% on products from China, are now in place. In response, Canada announced 25% tariffs on certain U.S. exports, which take effect immediately on C$30 billion worth of goods, and in 21 days on an additional C$125 billion of products. While Canadian countermeasures represent an escalation in trade tensions, they should have limited impact, as they apply to less than 0.5% of U.S. GDP of more than $29 trillion. China also announced new duties of 10%-15% on U.S. agricultural products. Mexico indicated that new tariffs on U.S. goods will be announced this weekend. While tariff uncertainty is weighing on consumer sentiment, the eventual impact on inflation could be partially offset by currency exchange rates if the U.S. dollar strengthens relative to other currencies, making imported products less expensive. In addition, manufacturers may not be willing or able to fully pass along tariffs to customers, narrowing profit margins, which can also help mitigate price increases. The economic effect of tariffs could also be mitigated by pro-growth policies, such as tax cuts and deregulation.
   
• Bond yields edge higher: Bond yields rose today, with the 10-year Treasury yield at 4.21%. Although the broader trend has been lower, with the benchmark yield dropping about 60 basis points (0.60%) from its January peak. Slower growth expectations and risk-off sentiment have driven bond prices higher and yields lower. Rising bond prices are supporting stronger performance, with U.S. investment-grade bonds, measured by the Bloomberg U.S. Aggregate Bond Index, up 2.98% year-to-date on a total-return basis. Markets have also raised expectations for Fed interest-rate cuts to two or three this year, which would bring the Fed funds rate to the 3.5% - 4.0% range**. In our view, the Fed's preferred inflation measure, personal consumption expenditure (PCE) inflation, which was 2.5% annualized through January, should continue to slow toward the Fed's 2% target. Moderating inflation should allow the Fed to continue removing restriction from monetary policy as it moves toward a more neutral stance.
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch}
 

• Nasdaq leads stocks lower ahead of new tariffs: Equity markets closed lower on Monday, as the S&P 500 reversed its gains for the year. Most sectors were down, with technology and energy stocks posting the largest declines. In international markets, Asia closed mostly higher as China is reportedly considering countermeasures to U.S. tariffs. Europe was up as well, led by defense stocks following meetings among leaders in the region to discuss bolstering military spending. Bond yields dropped, with the 10-year Treasury yield at 4.16%, down more than 60 basis points (0.6%) from its January peak. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil traded lower as OPEC remains on track to boost output in April*.
   
• Manufacturing indexes reflect continued expansion: The final S&P U.S. Manufacturing Purchasing Managers Index (PMI) for February rose to 52.7, above estimates and the highest reading since 2022. The figure reflected an acceleration in manufacturing-sector expansion for the second consecutive month. Higher prices in anticipation of tariffs were a key contributor. Output and new orders rose as well, though some of the activity may have been driven by advance purchases ahead of price increases and possible supply disruptions related to tariffs**. The Institute for Supply Management (ISM) Manufacturing PMI for February declined to 50.3, below expectations for 50.5. The price component rose significantly to 62.4, a key contributor to the manufacturing PMI remaining above the key 50.0 mark that reflects growth. Declines in new orders and employment were the main detractors driving the overall figure below forecasts***. Overall, we view these readings positively, as the recovery of the manufacturing sector is an important contributor to broader support for the economy and more sustainable growth.
   
• Tariffs set to take effect Tuesday: U.S. tariffs of up to 25% on exports from Canada and Mexico and an additional 10% on those from China are set to go into effect tomorrow. While tariff uncertainty is weighing on consumer sentiment, the eventual impact on inflation could be partially offset by currency exchange rates if the U.S. dollar strengthens relative to other currencies, making imported products less expensive. In addition, manufacturers may not be willing or able to fully pass along tariffs to customers, narrowing profit margins, which can also help mitigate price increases. The economic effect of tariffs could also be partially offset by pro-growth policies, such as tax cuts and deregulation.
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P ***Institute for Supply Management}
 

• Stocks rally to end the week: Equity markets closed higher on Friday following U.S. inflation data that matched consensus expectations. The S&P 500 and Nasdaq rose by 1.6%, while the Dow gained 1.4%.* Despite today's rally, U.S. stocks were mostly lower for the week, driven primarily from weakness in mega-cap technology stocks, with the Nasdaq positing its worst week since September of last year.* The Dow, which carries a lower weight in technology stocks, edged out a modest gain for the week. Overseas, markets in Asia were sharply lower overnight following yesterday's comments from President Trump that the U.S. will impose an additional 10% tariff on goods imported from China next week.* Bond yields finished the day lower, with the 10-year Treasury yield falling to 4.21% while the 2-year yield declined to around the 4% mark.*
   
• Inflation matches expectations; futures markets point to 0.5% of Fed rate cuts in 2025: Inflation data is in focus today with the release of personal consumption expenditures (PCE) inflation for January. Headline PCE rose by 0.3% in January and 2.5% on an annual basis, both of which were in line with expectations.* Core PCE, which is the Fed's preferred measure of inflation and excludes food and energy, rose by 0.3% in January and 2.6% on an annual basis, also both in line with expectations.* Looking into the drivers of January inflation, goods prices rose by 0.5% for the month, the highest since February of last year, while services inflation posted a more muted 0.2% gain.* Economic momentum has shown signs of slowing in the U.S. over recent weeks following softer-than-expected PMI data last week and an uptick in initial jobless claims yesterday.* While these are trends worth monitoring, we believe the U.S. economy remains on solid footing and is more likely to be normalizing from a period of above-trend economic growth as opposed to heading for a recession. The silver lining to the slowing economic momentum is that it has revived expectations for Fed rate cuts. Futures markets are now pricing in two quarter-point cuts in 2025, which could serve as a counterbalance to any slowdown in economic growth. In our view, 0.5% of Fed rate cuts in 2025 is a reasonable expectation; however, tariffs could pose an upside risk to inflation and keep the Fed on hold.
   
• Rotating market leaderships reiterates the importance of diversification: After back-to-back years of strong market gains led by mega-cap tech companies, a rotation in leadership has been underway in the first two months of 2025. The S&P 500 is modestly lower for the year through yesterday's close; however, nine of 11 sectors have seen positive returns.* The drag on the index has been the information technology and consumer discretionary sectors, which together comprise roughly 40% of the S&P 500 and are each lower by over 5% this year.** Meanwhile, value-oriented sectors, such as financials, health care and consumer staples, have seen strong returns. In fact, the Russell 1000 Value Index has gained 3.6% year-to-date, while the Russell 1000 Growth Index is lower by 3.4%.** In our view, we see potential for further broadening of leadership in the months ahead. Earnings in the Russell 1000 Value Index are expected to grow by roughly 10% in 2025 after two consecutive years of lackluster profit growth.* Additionally, value stocks generate a higher portion of their revenue domestically compared with growth stocks, which could partially insulate them from the impacts of trade-policy uncertainty.* In our view, this creates a favorable backdrop for broadening leadership in equity markets over the coming months, reiterating the importance of well-diversified portfolios. 
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet 
**FactSet. Total return through 2/27/2025.}
 

• Stocks turn lower, with tech earnings in focus: U.S. equity markets closed lower Thursday, with earnings from technology-giant's NVIDIA and Salesforce in focus. NVIDIA reported better-than-expected earnings per share and revenue, while Salesforce exceeded analyst expectations for earnings but reported lower-than-expected revenue. Despite the strong results from NVIDIA, shares were down by roughly 8%, highlighting the high bar of expectations for the company. Trade policy was also in focus, with President Trump reiterating that tariffs on Canada and Mexico will go into effect on March 4 and that an additional 10% tariff on imports from China will be levied at this time. In response, the tech-heavy Nasdaq closed lower by 2.8%, while the S&P 500 declined by 1.6%.* On the economic front, the second estimate of fourth-quarter GDP growth was unchanged at 2.3%, while initial jobless claims were higher than expectations. Bond yields ticked higher, with the 10-year Treasury yield finishing the day just below the 4.3% mark.*
   
• Tech earnings in focus: Corporate earnings were in focus today, with technology giants NVIDIA and Salesforce reporting after the market close yesterday. NVIDIA announced earnings per share of $0.89 and revenue of $39.3 billion for the quarter, both exceeding analyst expectations.* Additionally, NVIDIA CEO Jensen Huang provided upbeat commentary about demand for the companies chips despite the DeepSeek breakthrough in late January. Huang stated that reasoning models could require significantly more computing power than older models, which is seen as a positive for demand of NVIDIA's high-performance chips.* Despite the better-than-expected results and positive outlook from NVIDIA, shares closed lower, highlighting the high bar of expectations for the company. Software-giant Salesforce reported yesterday as well, with earnings per share exceeding expectations, while revenue growth was slightly below expectations.* Additionally, sales and net income guidance for the current quarter was below expectations, which weighed on the stock.* At an index level, roughly 95% of companies in the S&P 500 have reported fourth-quarter results, and earnings are on pace to grow by roughly 18%, up from estimates of only 11% coming into the year.* With valuations elevated relative to history, we believe continued strength in corporate profit growth will be a necessary ingredient in sustaining the current bull market. 
   
• Jobless claims rise but remain low relative to history: Initial jobless claims for last week rose to 242,000, above the prior week's reading and consensus expectations for 220,000.* The jump in jobless claims to 242,000 is the highest since December; however, the number of claims remains low by historical standards. Over the past 30 years, the median reading for initial jobless claims has been 325,000, signaling that labor-market conditions remain broadly supportive relative to history.* Additionally, nonfarm-payroll growth has averaged over 200,000 in the past three months, the highest since June of last year, while the unemployment rate remains low at 4%.* In our view, labor-market conditions should remain supportive to household spending throughout 2025, helping extend the economic expansion.
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet}