(Bloomberg) — Stocks fell and bonds rose as data signaled a weakening consumer and worries that inflation could gain further traction amid a trade war, underscoring the Federal Reserve’s challenges in navigating the current environment.
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Equities dropped for a third straight day, with the S&P 500 erasing this week’s advance. Treasury yields dropped, with the slide led by longer-dated bonds. The dollar wavered. The euro erased losses on news the European Union is identifying concessions it’s willing to make to the US to secure the partial removal of tariffs that have already started hitting the bloc’s exports and that are set to increase after April 2. Gold hit a fresh an all-time high.
US consumer sentiment tumbled this month to a more than two-year low and long-term inflation expectations jumped to a 32-year high as anxiety over tariffs continued to build. An earlier report showed spending was weaker than expected again in February while a key inflation metric picked up, in a double whammy for the economy before the brunt of tariffs.
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To Bret Kenwell at eToro, the biggest worry is that inflation will remain elevated amid a notable slowdown in the economy.
“And while that risk may not be the base case right now, any traction it gains could further weigh on investor sentiment. But unless there’s a larger deterioration in the economy, it’s too soon to jump on the stagflation train,” he said.
The S&P 500 fell 1%. The Nasdaq 100 slid 1.4%. The Dow Jones Industrial Average slipped 0.9%.
The yield on 10-year Treasuries sank eight basis points to 4.28%. The dollar fell 0.1%.
Fed officials left rates unchanged last week for a second straight meeting. Policymakers have said borrowing costs are well positioned to wait for greater clarity on the economic impact of President Donald Trump’s policy changes, including trade and immigration. Trump this week announced a 25% tariff on auto imports and is promising a bevy of reciprocal tariffs on April 2.
“It looks like a “wait-and-see” Fed still has more waiting to do,” said Ellen Zentner at Morgan Stanley Wealth Management. “Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.”
