New York, March 7, 2025: U.S. stock markets closed lower on Friday despite President Donald Trump’s decision to delay 25% tariffs on certain Mexican and Canadian imports for one month. While markets initially reacted positively to the temporary exemption for automakers, the broader impact of uncertainty surrounding tariffs kept investor sentiment weak.

Markets Close Lower Amid Volatility

Major U.S. Indexes:

• S&P 500: -104.11 points (5,738.52)
• Dow Jones: -427.51 points (42,579.08)
• Nasdaq Composite: -483.48 points (18,069.26)

Despite optimism that Trump is using tariffs as a negotiation tool rather than a permanent policy, investors remain cautious as new tariffs are still set to take effect on April 2.

"These exemptions don’t do much to resolve the general air of uncertainty," said Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management.

Adding to concerns, U.S. households are bracing for inflationary pressures, and businesses report facing “chaos” due to the unpredictable nature of tariff policies.

Fears of Stagflation Loom as Inflation Pressures Rise

Key Economic Risks:
Slowing economic growth with rising inflation raises fears of stagflation—a situation where economic stagnation and inflation occur simultaneously.
The Federal Reserve has limited tools to counteract stagflation, making policy decisions difficult.
BNP Paribas strategists warn that even if tariffs are eventually lifted, they could cause lasting damage to the global economy.

What’s next?
All eyes are now on the U.S. Labor Department’s employment report, set to be released Friday, which could provide further insight into the health of the job market.

Retailers Flash Warning Signals

Retail giants are hinting at potential consumer spending slowdowns:

• Macy’s: Reported weaker-than-expected Q4 2024 revenue, although profits exceeded forecasts. However, its 2025 profit outlook fell short, causing its stock to dip 0.7%.
• Victoria’s Secret: Despite surpassing Wall Street’s Q4 expectations, the company’s full-year revenue forecast disappointed analysts, leading to an 8.2% decline in its stock.

These results suggest that U.S. consumers may be reaching a spending limit, which could impact broader economic growth.

AI Stocks Plunge as Rally Cools Off

Tech stocks, particularly those linked to artificial intelligence (AI), faced heavy selling pressure:

Biggest AI-related losses:

• Marvell Technology: -19.8% despite better-than-expected earnings and a 60% projected revenue growth for next quarter.
• Nvidia: -5.7% as investors question whether AI stocks have become overvalued.
• Broadcom: -6.3% ahead of its earnings report.

Why are AI stocks dropping?
AI companies have set high expectations, and even strong earnings are no longer enough to satisfy investors.
Competition from Chinese firms like DeepSeek is increasing, with alternative AI solutions emerging that don’t rely on expensive U.S. chips.
Some analysts warn that AI stock valuations may have peaked after Nvidia’s massive 820% surge from 2023-2024.

Global Markets React to Economic Shifts

Europe: Mixed reaction as the European Central Bank cut interest rates, which was widely expected.
Germany: +1.5% rally after a major budget policy shift allowing increased borrowing and government spending.
Asia: Strong gains in:

• Hong Kong: +3.3%
• Shanghai: +1.2%

China’s commerce minister said Thursday that China would not bow to economic bullying and could withstand Trump’s higher tariffs, though he warned that "there are no winners in a trade war."

Bond Market & Interest Rates

10-Year Treasury Yield: 4.29% (slightly up from 4.28% on Wednesday)

As inflation fears grow, investors are closely watching the Federal Reserve’s stance on interest rates, with Chair Jerome Powell’s commentary expected later on Friday.

Key Takeaways: What’s Next for Investors?

Uncertainty around tariffs continues to weigh on markets.
Retailers signal potential consumer spending slowdown.
AI stocks may have hit a valuation ceiling after years of record-breaking gains.
Global markets remain volatile amid shifting economic policies.
The U.S. jobs report and Federal Reserve update will be critical next week.

Despite near-term volatility, investors are looking for more clarity on trade policies, inflation trends, and economic growth prospects before making big moves. The next few weeks could set the tone for Wall Street’s performance in Q2 2025.