Wall Street back in the red on tariff worries

General market commentary

US equity markets closed lower on Wednesday as investors reacted to concerns over new auto tariffs and their potential impact on inflation. The Nasdaq Composite fell 2% to 17,899, while the S&P 500 dropped 1.1% to 5,712.2, snapping a three-day winning streak. The Dow Jones Industrial Average fared slightly better, declining 0.3% to 42,454.8. Technology shares led the losses, particularly after reports that NVIDIA may face stricter regulations in China, adding to the sector’s weakness. Nvidia shares tumbled 5.7%, the steepest decline on the Dow and one of the worst on the S&P 500. Meanwhile, durable goods orders in the US unexpectedly rose by 0.9% in February, following a strong 3.3% increase in January, likely due to businesses rushing to place orders ahead of potential tariffs. Treasury yields moved higher, with the 10-year yield climbing to 4.35%, reflecting investor caution over inflation risks and monetary policy uncertainty.

Looking ahead, inflation remains in focus as markets anticipate the release of the personal consumption expenditures (PCE) index on Friday, the Federal Reserve’s preferred inflation gauge. Expectations are for headline PCE to rise 0.3% in February and 2.5% on an annual basis, while core PCE is projected to increase by 0.3% for the month and 2.7% year-on-year. While recent CPI and PPI inflation readings were softer than expected, concerns over tariffs driving price pressures persist. However, policymakers may view tariff-related price increases as temporary rather than a sustained inflationary force. The Fed is expected to hold interest rates steady in the near term, awaiting further economic data before considering cuts later in 2025. Meanwhile, equity market leadership has shifted in early 2025, with energy emerging as the top-performing sector, up nearly 10% year-to-date, followed by health care (+6%) and financials (+4.7%). Conversely, last year’s market leaders, including consumer discretionary (-9%) and information technology (-7%), have underperformed. This rotation underscores the importance of diversification, with investors advised to overweight health care and financials while maintaining a neutral stance on most other sectors.

Latest market and economic update

Asian shares mostly declined this morning as concerns over U.S. President Donald Trump’s auto tariffs and a potential supply glut in the AI sector weighed on markets, with Japan’s Nikkei and South Korea’s KOSPI suffering the steepest losses. However, Chinese equities remained stable, while Hong Kong’s Hang Seng index gained on optimism over China’s AI sector and potential economic stimulus from Beijing.

U.S. equity index futures declined following Trump’s announcement of auto tariffs, with S&P 500, Nasdaq 100, and Dow Jones futures falling 0.2%, 0.3%, and 0.1%, respectively. Tech shares, particularly AI-related firms like Nvidia, also weighed on sentiment amid concerns over oversupply in AI data centers.

European equities declined on Wednesday, with the Stoxx 50 falling 1.4% and the Stoxx 600 down 0.7%, as concerns over potential US auto tariffs weighed on sentiment. The autos sector led losses, dropping around 2.5%, while UK markets reacted to lower-than-expected inflation data and the spring budget update.

The U.S. dollar strengthened, reaching a three-week high of 104.71 before settling at 104.46, driven by higher Treasury yields and uncertainty over Trump’s new tariffs. The euro hit a three-week low of $1.0731 before recovering slightly to $1.0762, while the pound remained under pressure amid market caution.

Oil prices rose today amid concerns over tighter global supply following U.S. tariff threats on Venezuelan oil buyers and existing sanctions on Iran, with Brent crude at $73.86 and WTI at $69.75 per barrel. Analysts noted that while Trump’s auto tariffs could increase vehicle prices and impact oil demand, they may also slow the shift to more fuel-efficient cars, potentially supporting crude consumption.

Equities on the move

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

Analysts at TD Cowen have reported that Microsoft has cancelled and deferred data centre leases in the U.S. and Europe, mainly due to a slowdown in OpenAI training workloads, signalling an oversupply of data centres. At the same time, Google and Meta are stepping in to fill the capacity gap, while OpenAI is securing more third-party data centre space and planning its own long-term expansion.

Elon Musk acknowledged that Tesla would be significantly affected by Trump’s 25% tariffs on foreign-made cars, as the company imports key components from China despite manufacturing its vehicles in the U.S. Tesla’s shares fell nearly 6% following the announcement, adding to its struggles with declining European sales, increasing competition, and a consumer boycott over Musk’s alleged political ties.

Robinhood Markets is launching Robinhood Banking, offering checking and savings accounts with a 4% annual percentage yield and Federal Deposit Insurance Corporation coverage up to $2.5 million, initially for Robinhood Gold subscribers. The company also introduced Robinhood Strategies for personalised investment portfolios and Robinhood Cortex, an AI-powered market analysis tool.

OpenAI does not expect its cash flow to turn positive until 2029, as it faces significant costs related to chips, data centres, and talent, but anticipates revenue will exceed $125 billion by then. The company forecasts its revenue will more than triple to $12.7 billion in 2025, driven by the success of its paid AI software, and its paying business users have already surpassed 2 million.

BYD aims to double its overseas sales to over 800,000 units by 2025, focusing on markets in Britain, Latin America, and Southeast Asia, while assembling cars locally to overcome tariffs. The company is expanding its global presence with factories in Brazil, Thailand, Hungary, and Turkey, and plans to lead the market with affordable models and smart driving technologies.

Chewy reported stronger-than-expected fourth-quarter core income, with net sales rising 14.9% year-on-year to $3.25 billion, driven by growth in active customers. For the first quarter and full year, the company forecasted modest sales growth and core income margins, with analysts noting the guidance remained somewhat conservative.

Oklo Inc. reported increased losses and no firm purchase agreements in its fourth-quarter results, with analysts criticising its earnings call for focusing on hypothetical scenarios. Analyst Herb Greenberg added Oklo to his Red Flag Focus List, highlighting concerns over its valuation, lack of revenue, and the challenges facing speculative ventures in the nuclear sector.

Porsche SE, Volkswagen's largest shareholder, is exploring potential long-term investments in defence and infrastructure but has no plans to sell its shares in Volkswagen or Porsche AG. The company also proposed a lower dividend due to a drop in operating profits at Volkswagen, while emphasising the importance of cost-cutting initiatives at both Volkswagen and Porsche to boost profitability.

MFE-MediaForEurope, controlled by Italy’s Berlusconi family, is considering a bid to increase its nearly 30% stake in German rival ProSiebenSat.1 as part of its strategy to create a pan-European broadcaster. The company has secured €3.4 billion in financing to support a potential takeover, with a decision expected before ProSieben’s annual general meeting in May.

William Blair remains optimistic about Tesla despite near-term challenges in its auto business, forecasting a rebound in momentum as expectations reset. The firm is particularly positive on Tesla's energy business, noting the faster-than-expected ramp of Megapack production, and believes the company will maintain a lead in autonomous driving.

The Ferrari Group has attracted analyst coverage from Goldman Sachs and Jefferies, both highlighting its strong position in the luxury logistics sector and promising growth potential, with projected revenue increases of 6%-8% annually. The company’s high margins, competitive advantage in handling high-value goods, and strong cash flow generation support a positive outlook, though risks related to liquidity and macroeconomic pressures are acknowledged.

Citi upgraded TotalEnergies from Neutral to Buy, raising its price target to €70, citing the company's strong growth potential in its upstream business and premium portfolio. The bank expects real cash flow growth of 6% per year through 2030, supported by TotalEnergies' long upstream reserve life and its unique exposure to the growing electricity sector.

Evercore ISI upgraded Shell’s price target from $75 to $85, citing increased confidence in the company’s execution and financial strategy, particularly its focus on cost efficiency and shareholder returns. Shell’s recent Capital Markets Day highlighted an expanded cost reduction initiative and a higher capital return target, further strengthening its position in the industry.

Jefferies downgraded ArcelorMittal to "Hold" from "Buy" and maintained its €33 price target, expecting a period of share price consolidation due to ongoing uncertainties regarding the company's exposure to Mexico and Canada. While the long-term outlook remains positive, Jefferies sees limited upside in the near term, citing high valuations and the need for sustained steel price increases to justify further gains.

Upcoming data and events

Today, investors will closely monitor important economic data releases in the US, including GDP figures, initial jobless claims, and pending home sales.

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