Last week, the US stock market exhibited a rollercoaster of fluctuations, primarily driven by concerns over tariffs that affected sentiment at both the beginning and the close of the trading weekThe underperformance of major tech stocks emerged as a significant drag on the overall market.

The Federal Reserve finds itself at a challenging crossroadsIn a pivotal report, the latest non-farm payroll data revealed that the United States added 143,000 jobs in January, slightly below expectations from the marketMeanwhile, the unemployment rate dipped just 0.1 percentage points, settling at 4.0%. Analysts speculate that recent wildfires in California and harsh winter conditions across much of the country may have influenced the employment landscape.

Our investigations show that Washington analysts generally maintain an optimistic view on the health of the US labor marketThe economy appears to be generating sufficient job opportunities to sustain employment levels

Although the pace of hiring has decelerated since last year, most Americans seeking jobs are successfully landing them, and layoffs remain minimalCompanies are adopting a wait-and-see strategy regarding their recruitment plans, pending the implementation of economic initiativesIndustry surveys reveal widespread support for tax cuts and regulatory rollbacks, although caution prevails regarding stances on tariffs.

Interestingly, these concerns have seeped into consumer sentimentThe University of Michigan's February consumer confidence index dropped sharply from January's 71.1 to 67.8, marking a significant decline over two consecutive monthsSurvey respondents indicated that their one-year inflation expectations surged from 3.3% in January to 4.3%, the highest level observed since November 2023. The five-year inflation outlook also rose slightly from the previous month's 3.2% to 3.3%, reaching levels not seen since 2008.

The economic uncertainties stemming from tariffs, coupled with rising inflation, have led to volatile movements in the mid- to long-term US Treasury yields

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The two-year Treasury note, which is closely tied to interest rate expectations, saw an increase of 4.2 basis points over the week, reaching a two-week high of 4.277%. Conversely, the benchmark 10-year Treasury yield dropped by 8.2 basis points to 4.483%. Federal funds futures indicate that the Fed is unlikely to consider its first rate cut before June of this year.

In a report sent to us, TD Securities articulated the current situation: “Inflation has stagnated in recent months, and there is escalating uncertainty regarding the extent to which the new administration will act on tariffsAs a result, the Fed may exercise caution concerning rate cuts and maintain policy rates stable until sometime this summer.”

Bob Schwartz, a senior economist at Oxford Economics, highlighted that the Fed has hinted at pausing interest rate hikes as it seeks to understand the impacts of rate changes on the labor market and inflation.

Uncertainty and volatility loom over the markets once more

The three major stock indices plummeted in the closing moments of trading, completely erasing gains accrued throughout the weekBoth the Nasdaq and S&P 500 indices recorded their second consecutive week of losses.

Goldman Sachs indicated that high tariffs could pose downside risks to the earnings projections and return expectations for the S&P 500. “If corporate management decides to absorb the increased input costs, profit margins will face pressureConversely, if companies pass these higher costs onto consumers, sales volumes may be negatively impacted.” They estimate that a five-percentage-point increase in US tariffs could lead to a 1%-2% reduction in earnings per share for the S&P 500.

Diving deeper into sector performance, Dow Jones Market statistics revealed a notable divide among industries last weekNon-essential consumer goods and communication services took the hardest hits, with Tesla witnessing an 11% decline following the US Federal Highway Administration's announcement to pause the approval of state electric vehicle infrastructure deployment plans for the entire fiscal year

Google's parent company, Alphabet, experienced a 9.2% drop, despite fourth-quarter earnings surpassing expectations, attributed to lackluster revenue growthIn contrast, sectors like consumer staples, real estate, and energy saw slight increases, each rising by about 1%, while technology, finance, and utilities slightly edged higher.

On the investment front, US equity funds have seen outflows for the fourth week out of five, as investors grapple with rising geopolitical risks posed by trade tariffs while simultaneously worrying about earnings from key technology firmsData from Refinitiv indicates a net outflow of $10.71 billion from US equity funds last week, marking the largest withdrawal since December of last year.

The disappointing cloud revenue growth from Alphabet and AMD's downgraded forecast for data center sales have aggravated investor anxieties around heavy investments in artificial intelligence, leading to a sell-off of $6.44 billion in large-cap stock funds