U.S. benchmark equity indexes and Treasury yields experienced significant declines on Monday following recent remarks from former President Donald Trump regarding the potential for a recession this year. Investors reacted strongly, with the Nasdaq Composite falling 4% to settle at 17,468.3. The S&P 500 also saw a notable decrease, shedding 2.7% to 5,614.6, while the Dow Jones Industrial Average fell 2.1% to 41,911.7.
Technology stocks were particularly hard-hit, experiencing a 4.3% drop, the most severe decline among sectors. Conversely, utilities and energy stocks managed to close in the green. In a weekend interview with FOX News, Trump highlighted a forthcoming "period of transition" and did not dismiss the likelihood of an economic downturn in 2025.
According to Macquarie, Trump’s comments suggest a potential strategy to steer the economy towards recession, aiming to strengthen the administration's negotiating leverage with trade counterparts, including the Federal Reserve and the bond market. Meanwhile, Goldman Sachs has raised its forecast for 12-month recession probability to 20%, up from the previous 15%.
The investment bank attributes this adjustment to growing trade tensions, which are expected to negatively impact U.S. economic output and increase inflation levels. A recent survey conducted by the New York Fed indicates rising inflation expectations among U.S. consumers for the short term in February, although these expectations remained unchanged for medium- and long-term horizons.
The Fed reported that households expressed increased pessimism regarding their financial situations for the upcoming year, alongside deteriorating expectations related to unemployment, delinquency, and credit access. In the Treasury yield market, significant drops were noted on Monday, with the two-year rate falling 10.6 basis points to 3.896%, and the 10-year rate plunging 9.3 basis points to 4.225%. The so-called Magnificent-7 stocks, which include Tesla (TSLA), Meta Platforms (META), Microsoft (MSFT), Google's parent company Alphabet (GOOGL, GOOGL), Apple (AAPL), Amazon (AMZN), and Nvidia (NVDA), all concluded the day lower.
Notably, Tesla shares plummeted 15%, marking the steepest decline among S&P 500 constituents after UBS adjusted its price target downward. In regulatory news, European Union antitrust officials are anticipated to impose modest fines on Apple and Meta for purported violations of the Digital Markets Act, as reported by Reuters. Amidst these developments, the Trump administration’s tariffs on three key trading partners are expected to impact Best Buy (BBY) most severely among hardline retailers, potentially leading to weakening demand in the home improvement sector, according to Wedbush Securities. In a significant business deal, Rocket (RKT.US) has agreed to acquire real estate brokerage Redfin (RDFN) for an equity value of $1.75 billion, a move projected to enhance user engagement with Rocket's home-lending services.
After the announcement, Redfin's shares surged nearly 68%, while Rocket's shares experienced a decline of 15%. As earnings season progresses, nearly 99% of S&P 500 companies have reported their quarterly results, with an average earnings increase of 13.5% year-over-year and a revenue growth of 5.3%, according to Oppenheimer Asset Management.
Prior to earnings season, Bloomberg analysts had predicted a 7.3% year-over-year earnings growth. In commodities, West Texas Intermediate crude oil price edged down by 1.6% to $65.96 per barrel. Gold prices fell 0.8% to $2,891.5 per troy ounce, while silver decreased by 1.1% to $32.44 per ounce..