Market Cautious as Inflation, Tariffs, and Fed Policy Weigh on Sentiment

U.S. stock index futures edged higher in light trading on Monday night due to a market holiday, but investor sentiment remained cautious over the possibility of prolonged high interest rates and additional trade tariffs.

Walmart (NYSE:WMT) is set to report earnings this week, potentially offering insights into U.S. consumer spending amid rising inflation and tariff threats. Consumer spending, a key driver of the U.S. economy, has shown signs of strain. Inflation in January surged to its highest in nearly 18 months, and consumer sentiment dropped to a seven-month low in February. Analysts will be closely watching Walmart’s results, along with those of competitors Target (NYSE:TGT) and Home Depot (NYSE:HD), for indications of shifting consumer habits, particularly regarding discretionary spending.

Trump reaffirmed his commitment to reciprocal tariffs, stating that duties imposed on U.S. exports would be matched on imports from trading partners. This policy could particularly impact importers in Europe and Asia, given their reliance on value-added tax (VAT) systems. While Trump’s recent tariffs on steel and aluminum stand at 25%, and those on Chinese goods at 10%, the new reciprocal tariffs are not expected to take effect until April. Markets responded positively to this delay, pushing the S&P 500 close to record highs last week. However, concerns persist about the potential inflationary impact of these tariffs on the U.S. economy.

Alibaba (NYSE:BABA) will release its earnings report on Thursday, with investors eager to learn more about its artificial intelligence collaboration with Apple (NASDAQ:AAPL). Last week, Alibaba Chairman Joseph Tsai revealed that the company is partnering with Apple to enhance AI features for iPhones sold in China, beating out competitors such as Baidu (NASDAQ:BIDU), Tencent, and ByteDance. Analysts note that Apple's AI rollout in China has been slower than expected, partly due to Beijing’s requirement that Apple work with domestic firms. The absence of Apple Intelligence on iPhones in China, coupled with intensified local competition, has weighed on Apple’s sales in the region.

JPMorgan Chase (NYSE:JPM) analysts caution that growth and technology stocks may not maintain their dominant market position in 2025. Since the 2022 market downturn, growth stocks—particularly AI-driven firms like Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT)—have significantly outperformed. However, analysts warn that any decline in the dominance of the "Magnificent 7" tech stocks, such as the emergence of open-source AI models from China, could trigger a correction. Despite these concerns, JPMorgan notes that current conditions do not mirror the 2000 dot-com bubble, as today’s tech giants maintain strong cash positions and active share buybacks.

The Federal Reserve will release minutes from its latest policy meeting on Wednesday, providing further clarity on interest rate expectations. In January, the Fed held rates steady at 4.25%-4.5%, citing a strong labor market and persistent inflation. Fed Governor Christopher Waller suggested that Trump’s tariff policies would have only a modest inflationary impact but emphasized the need to keep interest rates unchanged in the near term. Markets have adjusted their expectations for future rate cuts, tempering hopes for significant reductions this year.

Diplomatic efforts to resolve the Russia-Ukraine conflict are gaining attention as U.S. and Russian officials meet in Saudi Arabia this week. The talks could pave the way for direct negotiations between Trump and Russian President Vladimir Putin. While European allies remain uncertain about their role in the discussions, analysts note that any potential peace deal could affect global oil markets. A reduction in sanctions on Russian energy could alter supply dynamics, though strong demand has kept crude prices stable in the near term.

Data for Technical Analysis (1H) CFD US30 DJIA

Resistance : 44612.6, 44618.3, 44627.7

Support : 44593.8, 44588.1, 44578.7              

1H Outlook

Source: TradingView                                  

Buy/Long 1 If the support at the price range 44573.8 - 44593.8 is touched, but the support at 44593.8 cannot be broken, the TP may be set around 44612.6 and the SL around 44563.8, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 44612.6 - 44632.6, TP may be set around 44652.0 and SL around 44583.8, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 44612.6 - 44632.6 is touched, but the resistance at 44612.6 cannot be broken, the TP may be set around 44587.9 and the SL around 44642.6, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 44573.8 - 44593.8, TP may be set around 44547.8 and SL around 44622.6, or up to the risk appetite.       

Pivot Points Feb 18, 2025 02:03AM GMT