Market Insights

February is starting with a bearish tone as Wall Street braces for tariffs and trade wars.

President Trump’s Saturday decision to place tariffs on Mexico, Canada and China had an immediate impact on risk assets. Bitcoin fell soon after the order was signed, followed by a drop in stock futures on Sunday evening.

The administration’s moves create multiple layers of uncertainty for investors and traders.

The first issue is inflation because Mexican and Canadian goods now face 25 percent tariffs. (Mexico and Canada are the biggest U.S. trading partners.) Chinese products will be taxed at 10 percent.

The second issue is employment. Countless U.S. factories and businesses rely on imported goods. Some are finished products ready for stores and others are unfinished items like autoparts. Disruptions could trigger layoffs, with ripple effects across the country.

That raises the third issue of a potential economic slowdown. Less trade, less production and potentially less employment could all reduce gross domestic product.

The fourth issue involves currencies. Fewer imports mean less demand for foreign currencies, which can lift the U.S. dollar.

Tariffs and Earnings
Those four concerns point to the fifth — and most important — item: earnings. Higher input costs, less employment, a slower economy and stronger dollar may hurt corporate profits. It comes at an especially sensitive time because Wall Street has spent several quarters waiting for corporate profits to accelerate. The growth seemed to be happening, based on results from financials and companies like Netflix (NFLX) and Meta Platforms (META).

But now attention could pivot to the future impact of tariffs. Will forward guidance be cut? Will margins narrow? Will prices be passed on to consumers, lifting inflation and interest rates? Such questions are likely to dominate conference calls this week, in the thick of earnings season. (See below for some of the big companies issuing results.)

Those potential risks may raise questions about valuations. FactSet calculates the S&P 500 trades at 22 times forward earnings, well above the average over the last decade. If robust profit growth doesn’t pan out, will investors demand lower stock prices?

Biggest Gainers in the S&P 500 Last Week
Royal Caribbean (RCL) +15%
International Business Machines (IBM) +14%
Franklin Resources (BEN) +11%
Norwegian Cruise Line (NCLH) +10%
Invesco (IVZ) +9.1%
Source: TradeStation Data
While there’s plenty of uncertainty, EY economist Gregory Daco made specific forecasts. He sees the U.S. economy losing 1.5 percentage points of growth and gaining 0.7 percentage point of inflation. He added that Mexico and Canada could face recessions.

The pain follows a tumultuous week, with stocks battered by a withering flow of negative headlines. The initial drop last Monday came after China’s DeepSeek AI app threatened to upend the U.S. technology sector. Prices quickly bounced and recovered all their losses by Friday morning, only to fall again on the tariff news.

By the time the dust settled, the S&P 500 ended down 1 percent between Friday, January 24, and Friday, January 31.

Chips Tumble
Semiconductors and other companies associated with AI investment declined the most. Nvidia (NVDA) led the selling with its biggest weekly drop since the bear market of 2022. Super Micro Computer (SMCI), Micron Technology (MU) and Vertiv (VRT) also fell. Even nuclear-power company Constellation Energy (CEG) and data-center owner Digital Realty (DLR) tumbled.

All those companies are involved in the hardware and capex side of AI. However, others on the software and services side climbed: International Business Machines (IBM), Atlassian (TEAM) and Salesforce.com (CRM).

META stood out in particular. The social-media giant not only beat estimates for earnings and revenue. User growth surprised to the upside and impressions increased even more quickly. (That suggests its AI-powered algorithms boosted engagement.) Its AI chatbot also continued to grow.

Fed Pauses
Last week also featured important economic news. The Federal Reserve kept interest rates unchanged — the first time in its last four meetings borrowing costs weren’t lowered. The statement was modestly hawkish by removing mention of progress against inflation. However, it maintained the basic messaging from the December meeting.

Biggest Decliners in the S&P 500 Last Week
Deckers Outdoors (DECK) -18%
Nvidia (NVDA) -16%
Super Micro Computer (SMCI) -14%
United Parcel Service (UPS) -14%
Quanta Services (PWR) -14%
Source: TradeStation Data
Gross domestic product (GDP) surprised to the downside on weak business investment, but consumption was much stronger than expected. Personal-spending data on Friday painted a similar picture.

Initial jobless claims fell more than forecast (a sign of economic strength) while consumer confidence missed forecasts. Inflation numbers were inline.

IBM’s AI Rally
Royal Caribbean (RCL) rose the most in the S&P 500 last week after its profit outlook beat estimates. The company benefited from strong bookings and wider margins. Rival Norwegian Cruise Line (NCLH) also climbed.

IBM had its biggest weekly gain in almost five years after earnings, revenue and guidance surprised to the upside. The tech company is benefiting from demand for Red Hat Linux and its AI services.

Asset managers Franklin Resources (BEN) and Invesco (IVZ) also jumped after announcing quarterly results.

Deckers Outdoors (DECK) and United Parcel Service (UPS), on the other hand, dropped on weak numbers.

Communications was the best-performing sector last week, supported by META and AT&T (T) earnings. Healthcare, global stocks and precious metals were also strong. Energy fared the worst, according to TradeStation data.

S&P 500, daily chart, with select patterns and indicators.

Charting the Market
The S&P 500 dropped to 5,963 last week before rebounding. That could make it the first important level traders view as support.

Below that, they may eye the price zone between 5,830 and 5,850. That’s where the index bounced several times since mid-November. Another potential level is the January 13 low of 5,773.

Chart watchers may also notice the series of lower weekly highs in December and early January. Returning below that trendline may invalidate the recent breakout.

Apart from the S&P 500, traders may watch the U.S. Dollar Index as a indicator. Further strength in the greenback may reflect increased fear.

The Week Ahead
This is the busiest week of earnings season, with about one-quarter of the S&P 500 issuing results. It also features key economic news.

The first item may occur early today, when ministers of the OPEC+ oil cartel meet. They’re expected to increase production as previously announced, according to Reuters. The Institute for Supply Management (ISM) also releases its manufacturing index for January. Palantir Technology (PLTR) reports earnings in the postmarket.

Tuesday brings the government’s job-openings report (JOLTs). Advanced Micro Devices (AMD) and Alphabet (GOOGL) are some of the big names announcing quarterly results.

ADP’s private-sector payrolls report, crude-oil inventories and ISM services data are on Wednesday. MicroStrategy (MSTR), Arm (ARM), Ford Motor (F), Qualcomm (QCOM) and Uber Technologies (UBER) report earnings.

Thursday features initial jobless claims. Results are due from Amazon.com (AMZN), Bristol Myers Squibb (BMY), Affirm (AFRM) and Peloton (PTON).

The big monthly employment report is on Friday morning, along with consumer sentiment.