Wall Street Rises Despite Tariff and Inflation Concerns: The U.S. stock market opened the week with strong gains,
disregarding concerns over inflation and tariffs.
The technology sector led the rally, with the Nasdaq 100 rising over 1%,
fueled by continued gains from Nvidia and Meta.
Steel and aluminum stocks also surged following remarks from U.S. President Donald Trump regarding new tariff impositions.
Amid these fluctuations, investors are closely watching upcoming inflation data
and Federal Reserve Chairman Jerome Powell’s testimony before Congress this week.
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U.S. Stocks Rise Led by Tech Despite Tariff Concerns
U.S. stocks and Wall Street Rises Despite concerns over tariffs and inflation.
The technology sector drove the market higher, with the Nasdaq 100 gaining over 1% on Monday.
Nvidia extended its rally for the fifth consecutive session, while Meta saw gains for the sixteenth session in a row.
At the same time, the raw materials sector experienced notable
gains after President Trump announced plans to impose a 25% tariff on all steel and aluminum imports.
This pushed United States Steel and Alcoa stocks up by more than 2.5%.
Trump confirmed that these tariffs would apply to all countries, including Mexico and Canada,
without specifying an exact implementation date.
Additionally, he announced plans to introduce retaliatory tariffs on nations that impose taxes on U.S. exports.
Investor Focus
Beyond global trade concerns, investors are also focusing on inflation data and Powell’s testimony this week.
According to a New York Federal Reserve survey,
inflation expectations for the next year and the following three years remained unchanged at 3% in January.
Chris Larkin from E*Trade (Morgan Stanley) commented:
“Inflation data, Powell’s testimony, and tariffs are this week’s key market drivers.
If the S&P 500 is to break out of its recent trading range,
it might need relief from negative surprises such as DeepSeek,
tariffs and consumer confidence have hindered momentum in recent weeks.”
Stock Markets Ignore Volatility and Continue Rising
Hedge funds emerged as major buyers of U.S. stocks last week,
reversing bearish positions amid stronger-than-expected corporate earnings.
According to a Goldman Sachs report for the week ending February 7,
hedge funds bought U.S. stocks the fastest since November,
marking the largest net purchase of individual stocks over three years, with a strong focus on the technology sector.
The S&P 500 rose 0.7%, the Nasdaq 100 climbed 1.3%, and the Dow Jones Industrial Average advanced 0.3%.
Bloomberg’s “Magnificent Seven” total return index gained 0.9%, while the Russell 2000 increased 0.5%.
The 10-year U.S. Treasury yield remained stable at 4.49%,
while the Bloomberg U.S. Dollar Index rose 0.2%. Gold prices surpassed $2,900 per ounce.
Are Tariffs Just a Negotiation Tactic?
Jose Torres from Interactive Brokers believes that many investors are beginning
to realize that most of the tariff rhetoric will not materialize.
Instead, it appears to be a negotiation strategy.
“The goal is to enhance domestic economic conditions rather than disrupt global trade momentum.
The outcome will likely be far better than initially expected,”
Torres explained. “That is why traders are stepping in and buying stocks today.”
Bespoke Investment Group analysts noted:
“Since the inauguration, regardless of one’s stance on President Trump,
his second term has brought endless headlines.
Yet, despite this constant news flow, the market has remained surprisingly calm.”
Market Stability Amid Continuous News Flow
Over the last 100 trading days, the $630 billion ETF tracking the S&P 500 (SPY)
has traded within a relatively tight range of under 10%, according to Bespoke.
While this range may seem wide,
it ranks in only the 13th percentile among similar historical periods since the ETF’s launch in 1993.
During the COVID-19 pandemic, the S&P 500 ETF saw swings above 50%,
while volatility peaked at over 75% during the financial crisis.
Analysts Opinions
Anthony Saglimbene from Ameriprise advised:
“It may be best for investors to avoid reacting to daily news cycles.
It’s wiser to step back and allow developments related to tariffs, big tech, and interest rates to unfold over time.
Making investment decisions based on uncertain outcomes increases the risk
of errors or mistimed moves if events unfold differently than expected.”
Mark Hackett from Nationwide added:
“Despite the daily market noise, uncertainty over tariffs, geopolitical factors,
and tech sector valuations remain the biggest unknowns for investors.
These factors indicate a measured gain environment rather than the high returns of recent years.”
According to one market indicator,
investor expectations for the stock market have never been this high at the start of a presidential term.
The cyclically adjusted price-to-earnings (CAPE) ratio hit 38 in late January,
a level that Charlie Bilello from Creative Planning described as “extremely high”, reflecting unprecedented market optimism.
Investor Trends
Investor positioning tells a similar story, with the equity risk premium (ERP)
which measures the expected return differential between stocks and bonds
falling sharply into negative territory for the first time since the early 2000s.
Richard Saperstein from Treasury Partners commented:
“Despite high valuations, we remain fully invested due to continued economic growth,
declining inflation, and a supportive Federal Reserve.
We anticipate a volatile market that leans toward upside potential throughout the year.”
However, Kali Cox from Ritholtz Wealth Management warned that high expectations,
rising interest rates and policy uncertainty create a challenging investment mix:
“It’s crucial for investors to balance their portfolios and recognize that there are opportunities beyond artificial intelligence.”
Potential Market Pullbacks
Deutsche Bank strategists, including Binky Chadha,
believe that market resilience in the face of tariffs could lead to further trade escalations,
increasing the likelihood of equity market pullbacks.
According to their research, markets historically experience sharp but short-lived sell-offs during geopolitical shocks.
Stocks typically decline 6%-8% over three weeks, then recover over the next three weeks, even before tensions subside.
Christian Floro from Principal Asset Management emphasized:
“For investors, the biggest market risks likely stem from policy unpredictability.
In this environment, diversification is essential to manage portfolio risks
and capitalize on opportunities as companies, countries, and markets adapt.”
Wall Street Rises Despite Tariff and Inflation Concerns