U.S. equity markets finished February slightly lower, with the S&P 500 down 1.3%. The technology sector, which comprises about 1/3 of the S&P 500 index, was also down 1.3%, driving the selloff. Investors continued to exercise caution around active international trade negotiations while weighing potential economic policy changes. The chart below shows the Economic Policy Uncertainty Index hitting its second highest level since the 1980s. Despite the fluid trade situation and potential for tariffs to impact inflation, the 2- and 10-year U.S. Treasury yields each fell more than ~0.2% (20bps). Higher inflation expectations would typically result in higher yields, though tariffs may not cause this relationship to hold. In currency markets, the U.S. dollar strengthened modestly during February, driven by relatively strong U.S. economic data and interest rates compared to global peers and rising trade tensions.
Economic indicators released in February showed the U.S. economy remained strong. January employment data showed solid job growth, with 143,000 new jobs added and the unemployment rate declining slightly to 4.0%. The Conference Board’s Consumer Confidence Index fell nearly 7% in February month-over-month, on increased pessimism about future conditions and higher inflation expectations. January’s Consumer Price Index (CPI) rose 3.0% year-over-year, on persistent housing inflation. Non-housing related CPI categories remained in line with the Fed’s 2% inflation target.
Jared J. Ruxer, CFA, MS