S&P 500 closes in correction territory

General market commentary

Equity markets closed sharply lower on Thursday, as investors grappled with policy uncertainty despite signs of easing inflation. The S&P 500 slid 1.4%, officially entering correction territory, while the Dow dropped 1.3% and the Nasdaq tumbled nearly 2%. A softer-than-expected producer price index (PPI) reading, which remained flat in February versus forecasts of a 0.3% gain, provided further evidence that inflationary pressures continue to moderate. Additionally, initial jobless claims came in lower than expected at 220,000, reinforcing a resilient labour market. However, these positive economic signals failed to lift sentiment, as concerns over a looming government shutdown and escalating trade tensions between the U.S. and the European Union weighed heavily on investor confidence. Defensive sectors, particularly utilities, outperformed, while growth-oriented sectors such as communication services and consumer discretionary lagged. Meanwhile, bond yields declined, with the 10-year U.S. Treasury yield settling around 4.27%, reflecting a cautious outlook.

Investors were rattled by trade tensions, as the European Union responded to U.S. steel and aluminium tariffs with a 50% levy on American whiskey, prompting former President Trump to threaten a 200% tariff on European wines and spirits. Political uncertainty in Washington added to investor unease, with the Senate struggling to secure enough votes to pass a spending bill before Friday’s deadline, raising the risk of a government shutdown. In corporate news, Intel surged over 14.5% after appointing industry veteran Lip-Bu Tan as CEO, while Adobe plummeted nearly 14% following a disappointing revenue forecast. With market volatility persisting, history suggests that pullbacks are a natural part of investing, and maintaining a well-diversified portfolio remains key to navigating uncertain conditions.

Latest market and economic update

Asian markets mostly advanced on Friday, led by a surge in Chinese shares after the People's Bank of China pledged further monetary easing to support economic growth. The Shanghai Composite jumped 1.5%, while gains in other regional markets, including Japan and Australia, were more modest, as trade tensions between the U.S. and Europe kept investor sentiment cautious.

US equity futures edged higher overnight, suggesting a potential rebound for Wall Street as investors assessed cooling inflation data against ongoing trade tensions and recession fears. Market focus will be on the Senate’s vote on the stopgap funding bill to avert a government shutdown, while concerns persist over President Trump’s threat of a 200% tariff on European alcoholic imports, which could further strain global trade relations.

European markets fell on Thursday, with the Stoxx 50 dropping 0.9%, as US tariff threats weighed on global trade, particularly affecting wine and spirits companies like Pernod Ricard and Rémy Cointreau. The broader Stoxx 600 slipped 0.2%, while autos declined 1.6%, although Novo Nordisk stood out, rising 5% after an upgrade from Kepler Cheuvreux.

The US dollar index rose to around 104, marking its third consecutive session of gains, with trade tensions and President Trump's tariff threats weighing on the euro and other currencies. The EUR/USD pair is currently trading at 1.0843, as investors focus on the Federal Reserve's upcoming policy decision and recent inflation and job data.

Oil prices edged higher this morning after President Trump imposed fresh sanctions on Iran’s oil sector, but they remained on track for weekly losses amid oversupply concerns. Weighing on the market were ongoing Russia-Ukraine ceasefire talks and an International Energy Agency (IEA) forecast predicting excess global oil supply in 2025 due to slowing demand growth.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Ulta Beauty surpassed sales and profit expectations for the fourth quarter, benefiting from strong holiday demand, but forecasted lower-than-expected annual sales and profit amid potential price increases due to trade policies. Shares rose 6.5% in extended trading, while the company announced insider Kecia Steelman as its next CEO.

DocuSign exceeded fourth-quarter earnings and revenue expectations, boosting shares by over 11% in extended trading. However, its revenue forecast for the first quarter and full fiscal year fell short of analyst estimates.

Apple is set to launch a software update for AirPods later this year, enabling real-time translation of conversations as part of iOS 19. Alongside this update, the company is also developing new AirPods hardware, including a third-generation AirPods Pro and a model with built-in AI-powered cameras.

Google has rolled out major updates to its Gemini app, including a new version of the 2.0 Flash Thinking Experimental model with enhanced features like file uploads, a 1M token context window, and expanded access to the Deep Research tool. Additionally, Gemini now offers a personalised experience, integrates with more Google apps, and introduces a new feature called Gems, allowing users to create customised AI experts.

Tesla has warned that President Trump’s proposed tariffs on global vehicle imports could lead to retaliatory measures, disproportionately impacting U.S. exporters and raising costs for electric vehicles. The automaker, along with industry trade groups, urged a phased approach to avoid supply chain disruptions, higher consumer prices, and potential job losses in U.S. manufacturing.

Shares of IonQ fell 2% after Kerrisdale Capital published a report questioning the company's valuation, scalability, and transparency, highlighting challenges in meeting its growth projections. The report criticised IonQ's reliance on unproven technology and accused the company of making unrealistic claims, warning investors of overvaluation and scaling difficulties.

The British government has reduced its stake in NatWest Group, selling 89 million shares, which has lowered its holding to 4.82%. As a result, BlackRock Investment Management has become the largest shareholder in the bank, now holding a 5.72% stake.

DA Davidson upgraded Microsoft to a Buy rating and raised its price target to $450, citing the company's more disciplined capital expenditure strategy and strong positioning among mega-cap tech firms. The firm believes Microsoft's shift in AI infrastructure investment and limited consumer exposure make it a defensive play in a slowing economy, with a more attractive valuation compared to its peers.

Bernstein analysts view the recent dip in Netflix shares as a buying opportunity, maintaining an Outperform rating with a $1,200 price target, citing strong engagement and growth potential. Despite short-term challenges, they remain confident in Netflix’s ability to expand margins and maintain high pricing power due to its value proposition and under-penetrated international markets.

Goldman Sachs has double-upgraded Schneider Electric to a "Buy" rating from "Sell" and raised its price target to €280, citing stronger fundamentals and an overdone market reaction to concerns about datacentre demand. The analysts highlighted multiple growth drivers, including a recovery in the Low Voltage construction segment and continued expansion in Medium Voltage and datacentre-related businesses, with expectations for improved returns on invested capital in 2025.

Jefferies analysts have initiated coverage on five European defence shares, with Rheinmetall as their top pick due to strong growth potential and short-cycle appeal, followed by RENK, Dassault Aviation, Leonardo, and Hensoldt. The firm expects Europe's defence spending to increase significantly, benefiting companies like Rheinmetall and RENK, while cautioning against Thales' rapid re-rating due to its longer-cycle nature.

Barclays analysts believe the recent selloff in cruise line shares is overstated, with fears about pricing instability being exaggerated, as they argue the industry remains resilient due to strong pricing power and a discount to land-based holidays. Despite macro volatility, Barclays expects only a minor impact on yields, with Royal Caribbean and Carnival identified as preferred equities due to their strong value propositions.

Upcoming data and events

Today, the University of Michigan's Consumer Sentiment Index and inflation expectations are set to be released, providing key insights into consumer confidence and anticipated price pressures.

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