2025.02.0718:08:00UTC+00U.S. Stocks See Further Downside After Early Pullback

The stock market faced downward pressure throughout Friday's trading session, with further declines evident as the day progressed. All major indices turned sharply negative, reversing the gains seen over the past three days for the Nasdaq and S&P 500.

As it stands, these indices have nearly hit their lowest points for the day. The Nasdaq has decreased by 218.76 points, or 1.1%, to 19,573.23; the S&P 500 is down 40.84 points, or 0.7%, to 6,042.74; and the Dow Jones Industrial Average has dropped 317.22 points, or 0.7%, to 44,430.41.

The initial market weakness followed the release of a report from the University of Michigan indicating an unexpected decline in consumer sentiment for February, influenced by an increase in short-term inflation expectations. The consumer sentiment index fell to 67.8 in February from 71.1 in January, contrary to expectations of a rise to 72.0. This marks the index's lowest reading since July 2024, when it hit 66.4.

Driving the drop in consumer sentiment were surging year-ahead inflation expectations, which climbed to 4.3% in February from 3.3% in January, marking the highest level since November 2023. Joanne Hsu, Director of the Surveys of Consumers, noted, "Many consumers appear worried that high inflation will return within the next year," highlighting this as a significant rise by historical standards over the past 14 years.

Additional market concerns emerged after former President Donald Trump announced plans to impose reciprocal tariffs next week, targeting imports from various countries at levels equivalent to those imposed on U.S. exports.

Investors are also processing mixed signals from the U.S. labor market. The Labor Department's key report showed job growth in January was weaker than anticipated, though the unemployment rate unexpectedly fell. Non-farm payrolls increased by 143,000 jobs in January, short of the expected 170,000-job increase. However, job numbers for December and November saw upward revisions, adding a total of 100,000 more jobs than originally reported.

Furthermore, the unemployment rate edged down to 4.0% in January from 4.1% in December, diverging from expectations of no change. Jeffrey Roach, Chief Economist for LPL Financial, remarked, "An unemployment rate at 4% is considered very low, giving the Fed reason to keep fed funds unchanged in the near term."

In terms of industry sectors, housing stocks continued to struggle, affected by rising treasury yields, leading the Philadelphia Housing Sector Index to fall by 2.6%. Retail stocks also faced notable declines, as evidenced by the Dow Jones U.S. Retail Index's 2.1% drop, partly due to a significant 3.7% fall in Amazon's stock, despite its strong fourth-quarter results, due to disappointing sales projections.

The biotechnology and semiconductor sectors also experienced pressure, whereas airline and networking stocks showed resilience.

Internationally, Asia-Pacific stock markets delivered mixed results on Friday, with Japan's Nikkei 225 Index dropping by 0.7% while China's Shanghai Composite Index rose by 1.0%. European markets ended the day lower, with Germany's DAX Index falling 0.5%, France's CAC 40 down 0.4%, and the U.K.'s FTSE 100 decreased by 0.3%.

In the bond market, treasuries witnessed a downward movement, resulting in the yield on the benchmark ten-year note rising by 5.9 basis points to 4.497%.