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.