U.S. Markets: Tech Stocks Struggle Amid Trade Tensions

It was a mixed week for U.S. equities during the holiday-shortened trading period. While mid-sized and small-cap stocks, represented by the S&P MidCap 400 and the Russell 2000, posted gains, the major indexes closed in negative territory. The Dow, S&P 500, and Nasdaq all declined, dragged lower in part by losses in the tech sector. This weakness followed news of fresh U.S. export restrictions on advanced chips to China, sending AI-heavy names like NVIDIA and AMD sharply lower.

Investor sentiment took another hit midweek as Fed Chair Jerome Powell, speaking in Chicago, reiterated the Fed’s cautious approach. While acknowledging that tariffs have been more disruptive than expected—fueling inflation and slowing growth—he emphasized that the Fed is not rushing to adjust policy until the economic outlook becomes clearer. This dampened hopes of a near-term rate cut.

Housing Market Faces Policy-Driven Headwinds

April’s NAHB Housing Market Index edged up slightly to 40 but remained below the breakeven mark of 50, suggesting continued pessimism among homebuilders. Chief Economist Robert Dietz pointed to policy uncertainty as a critical hurdle, affecting pricing and decision-making.

Housing starts data echoed that sentiment—construction dropped over 11% in March to an annualized pace of 1.32 million units, well below forecasts. Homebuilder D.R. Horton also struck a cautious tone, citing affordability pressures and wavering buyer confidence as reasons for its reduced revenue and closing forecasts for 2025.

Retail Sales Rebound Ahead of Tariffs

In contrast, retail sales surged 1.4% in March—the strongest monthly growth in over two years. Consumers appeared to front-load purchases ahead of looming auto tariffs, with vehicle sales up 5.3%. Gains were also seen in building materials, electronics, and sporting goods.

Treasuries Rebound on Hawkish Fed Messaging

After a sell-off the previous week, U.S. Treasuries rallied as Powell’s comments reignited risk-off sentiment. Intermediate-term yields saw the sharpest declines. Municipal bonds also staged a recovery, signaling a stabilizing fixed-income market.

*Source of data: Yahoo! Finance and Bloomberg

Europe: Optimism Returns on ECB Easing

European stocks rebounded, with the STOXX Europe 600 Index up nearly 4%, buoyed by the ECB’s expected rate cut and a temporary easing of U.S. tariff threats. Gains were broad, with Italy’s FTSE MIB climbing almost 5% and the UK’s FTSE 100 rising 4.58%.

The ECB lowered its deposit rate to 2.25% and hinted at deeper cuts ahead. Chief Economist Tomasz Wieladek noted the central bank’s tone suggests it’s aiming to ease significantly below neutral, potentially toward 1.5%, to counteract weak growth and lingering trade uncertainty.

In the UK, inflation eased more than expected to 2.6%, while wage growth remained resilient. Job data showed some labor market softening, with a notable drop in payrolls.

Japan: Trade Talks and Dovish BoJ Support Gains

Japan’s equity markets rose, with the Nikkei 225 and TOPIX climbing over 2%. Progress in U.S.-Japan trade talks and a cautious stance from the BoJ supported sentiment. BoJ Governor Ueda emphasized policy flexibility amid tariff-related uncertainty.

Despite a stronger yen—driven by risk aversion—the issue of currency values remains absent from trade talks. Japan’s March exports grew 3.9%, short of expectations, while imports returned to growth after February’s decline.

China: Solid Q1 Growth, But Stimulus Looms

Chinese markets advanced modestly, helped by expectations of stimulus to offset tariff effects. Q1 GDP rose 5.4% year-on-year—above forecasts but driven by early shipments ahead of tariff hikes.

Analysts warn that tougher U.S. trade barriers may slow growth in the months ahead. Many global banks have revised down their 2025 China growth outlooks, though Beijing is expected to respond with fiscal measures. A key Politburo meeting later this month may reveal further policy plans.

Other Markets

Hungary:
S&P Global shifted its rating outlook from “stable” to “negative,” raising the risk of a downgrade. Fiscal strain and EU tensions are major concerns, especially ahead of 2026 elections.

Türkiye:
In a surprise move, the central bank hiked rates by 350bps to 46% amid persistent inflationary pressures. Officials highlighted continued strength in domestic demand and the global impact of rising protectionism on price stability.