What’s behind the recent volatility in markets?

Transcript

hi welcome to Mark weekend review for the weekending February 28th 2025 I'm Paul idman and yeah I think the main message out of financial markets this week was one of a riskof tone we had the US Equity Market is measured by the S&P 500 Index trade down about 2 and a half% through Thursday's close um here in Seattle and 10e treasury yields uh declined as well if you go back to mid January the recent peak in yields uh they've now fallen 50 basis points which is a pretty substantial move in a short period of time uh in terms of drivers for that three things stood out to me uh driving the market action this week I'd say first uh we've had a bit of a selloff in the US Mega cap uh Tech names uh second a lot of um policy uncertainty and proposals from the new US Administration uh and then third and finally uh at the margin some uh disappointing macro data out of the US economy so if we start with the uh Mega cap Tech sell off really the main macro Market event this week was nvidia's fourth quarter earnings results uh that came out on Wednesday's close um those earnings did beat consensus expectations but not by nearly as much as what we'd seen over the past uh several quarters and on the back of that nvidia's stock sold off over uh 8% in Thursday's session here um more broadly if you kind of zoom out over 2025 as a whole we've started to see some broadening out and rotation in Market leadership where the so-called Magnificent Seven stocks are actually underperforming the other 493 names in the index by a substantial margin uh 12 percentage points uh year to date in 2025 and half of that came uh just in in this week's alone so definitely a notable sort of rotation coming through in the market which was one of the themes uh that we were thinking uh of uh in terms of our outlook for uh the new year um second uh policy uncertainty um you know trade continues to be a focus point for the new US Administration president Trump this week um sounded very serious in his intent to push forward on uh his proposed tariffs against Canada and Mexico He also mentioned that uh he'll put in place an additional 10% tariff on us imports from China with all of those measures to take effect on time uh next week on on March 4th and so that that seriousness around uh potential follow through on trade uh also contributed to uh some incremental risk aversion um this week third and finally I mentioned us growth concerns the US business cycle has been positively surprising pretty consistently since October of last year at the edges and I think this is just incremental right now but at the edges we had some more downbeat data this week we had a pickup in initial jobless claims uh which we'll have to keep an eye on now over the next uh couple of weeks some of that came out of Washington DC and might be related to the uh Doge efforts to streamline uh the US government and make it more efficient uh we also had a step down in consumer confidence um I think broadly speaking as we're kind of viewing uh the US economy today continue to see a pretty solid foundation of fundamentals into all this uh policy uncertainty where we think we can uh still see resilience and a soft Landing uh going forward but what actually happens on policy is going to be quite key to those outcomes but yeah ultimately a riskof tone um on the back of that though we are starting to see some pessimism creep into our measures of Market psychology and I would say for for long-term investors uh times of certainty and pessimism like this are usually good times to be in the market and and in the game uh for solid returns over the long term uh so anyway that's what stood out to me this week thanks for tuning in and we'll see you uh next time thanks a lot bye hi I'm Sophie Anto head of portfolio and business Consulting at Russell Investments if you liked what you just saw and heard consider subscribing to our YouTube channel or check us out on LinkedIn thanks for tuning in

Executive summary:

U.S. mega-cap tech names have sold off in recent weeks
The U.S. could implement 25% tariffs on Mexican and Canadian imports next week
Recent surveys show a decline in U.S. consumer confidence

On the latest edition of Market Week in Review, Senior Director and Chief Investment Strategist for North America, Paul Eitelman, explored key reasons behind the recent decline in U.S. equity markets. He attributed the downturn to three main factors: the selloff in mega-cap tech stocks, U.S. trade-policy uncertainty, and U.S. economic growth concerns.

Are equity markets broadening out?

Eitelman began by noting that U.S. equities, as measured by the benchmark S&P 500 Index, were off by roughly 2.5% this week, as of market close on Feb. 27. The risk-off tone has helped spark a broader rally in the bond market, he said, noting that U.S. 10-year Treasury yields have fallen by roughly 50 basis points (bps) since peaking near 4.8% in mid-January. “That’s a pretty substantial move in a short period of time,” Eitelman observed.

He said that the main market-moving event of the week was the reaction to AI (artificial intelligence)-chipmaker Nvidia’s fourth-quarter earnings results, which were released after market close on Feb. 26. The company’s earnings still topped consensus expectations, but not by nearly as much as in prior quarters, Eitelman said. This led Nvidia shares to tumble by over 8% the following day, he noted.

Zooming out for a wider look at the U.S. equity market, Eitelman said that market leadership has started to broaden out in 2025. Case-in-point: The Magnificent Seven group of stocks are actually underperforming the other 493 names in the S&P 500 by 12 percentage points so far this year, he said.

“This is a notable rotation in U.S. stocks—and one that we expected going into the year,” Eitelman remarked. He added that there’s also been a broadening out in market leadership globally, with both Europe and China outperforming the U.S. so far in 2025.

Trade-policy uncertainty weighs on markets

Shifting to U.S. trade policy, Eitelman said that uncertainty over potential U.S. tariffs also rattled markets this week. “U.S. President Donald Trump sounded very serious in his intent to move forward with implementing a 25% tariff on imports from Canada and Mexico,” he remarked, noting that this plan was paused for 30 days in early February. The tariffs are set to go into effect on March 4, Eitelman said, adding that the president also indicated he’ll place an additional 10% tariff on Chinese imports at the same time.

“The seriousness around a potential follow-through on tariffs by the U.S. government likely contributed to some incremental risk aversion in markets this week,” he remarked.

U.S. unemployment claims rise

Eitelman closed with a look at recently released U.S. economic data, which he said was disappointing at the margin. Initial weekly unemployment claims rose to 242,000 for the week ending Feb. 22, he said—the highest amount since last October. Some of the new filings came from Washington, D.C., Eitelman said, noting they may be related to the Department of Government Efficiency’s (DOGE) efforts to reduce the size of the federal government.

On top of this, the latest survey from The Conference Board showed a step-down in confidence among U.S. consumers, he noted. Those findings aligned with the results from a similar University of Michigan survey, which also showed a drop in consumer sentiment, Eitelman stated.

However, Eitelman said many fundamental measures of the U.S. economy still appear fairly solid. “The economy continues to look resilient and on a path to a soft landing. That said, what happens around U.S. trade policy could have an outsized impact on the ultimate outcome,” he remarked.

Eitelman finished by noting that he’s starting to see some pessimism creep into the market. “For long-term investors, it’s important to stay disciplined and in the game during times of uncertainty like these,” he concluded.

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