S&P 500 ends barely changed; Nvidia shares up after the bell

NEW YORK – The S&P 500 ended little changed on Wednesday ahead of quarterly results from Nvidia, whose positive outlook could set the tone for the artificial intelligence sector.

Stocks lost ground in afternoon trading, with investors digesting the latest comments from US President Donald Trump on tariffs.

Trump said on Wednesday his administration would soon announce a 25% tariff on imports from the European Union. He also raised hopes for another pause on steep new tariffs on imports from Mexico and Canada by saying they would take effect on April 2, about a month later than the deadline next week.

After the closing bell, Nvidia’s shares were up about 2% in choppy trading. The AI tech leader forecast first-quarter revenue above market estimates.

Nvidia’s stock ended the regular session up 3.7%, while an index of semiconductors was up 2.1% on the day.

The launch and popularity of low-cost AI models from China’s DeepSeek had rattled the industry in January and raised questions around US companies’ heavy investments in the technology.

Any upbeat comments by Nvidia on demand will elevate stocks of companies investing heavily in AI, said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta. “It’s become the biggest tech report.”

The Dow Jones Industrial Average fell 188.04 points, or 0.43%, to 43,433.12, the S&P 500 gained 0.81 points, or 0.01%, at 5,956.06 and the Nasdaq Composite rose 48.88 points, or 0.26%, to 19,075.26.

Gains in technology shares were offset by losses in healthcare, consumer staples and other sectors.

Nvidia’s results came near the end of a stronger-than-expected earnings period for S&P 500 companies.

“It’s been a pretty constructive earnings season,” said Tom Hainlin, senior investment strategist at US Bank.

A Reuters poll showed strategists still expect the S&P 500 to finish 2025 about 9% above current levels, although market volatility will persist.

Since last week, a series of data releases, including Tuesday’s weak consumer sentiment report, have hinted that the world’s largest economy might be stalling despite inflation remaining high, keeping investors on the edge.

Intuit shares rose 12.6% after the TurboTax maker forecast third-quarter revenue above Street estimates.

Advancing issues outnumbered decliners by a 1.13-to-1 ratio on the NYSE. There were 91 new highs and 115 new lows on the NYSE. On the Nasdaq, 2,502 stocks rose and 1,917 fell as advancing issues outnumbered decliners by a 1.31-to-1 ratio.

Volume on US exchanges was 14.58 billion shares, compared with the 15.4 billion average for the full session over the last 20 trading days.

(Additional reporting by Johann M Cherian and Sukriti Gupta in Bengaluru; Editing by Devika Syamnath and Richard Chang)

Oil falls, settles at 2-month low as US fuel inventories rise

NEW YORK – Oil prices fell to two-month lows on Wednesday as a surprise build in US fuel stockpiles signaled demand weakness and a potential peace deal between Russia and Ukraine continued to weigh on prices.

Brent crude settled down 49 cents, or 0.67%, at USD 72.53 a barrel. US West Texas Intermediate crude oil futures fell by 31 cents, or 0.45%, to USD 68.62.

Both benchmarks settled at their lowest since December 10.

US gasoline and distillate inventories posted surprise builds last week even though crude oil stockpiles fell unexpectedly as refining activity ticked higher, the Energy Information Administration said.

“We had a knee-jerk reaction down to the low. It was a bit of a surprise because the crude oil number was a pretty big draw,” said Bob Yawger, director of energy futures at Mizuho.

Prospects for a peace deal between Russia and Ukraine are improving, ING commodities strategists said in a note, adding the market was also watching for implications of a minerals deal between the US and Ukraine.

“This would take us a step closer to Russian sanctions being lifted, removing much of the supply uncertainty hanging over the market,” the note said.

Downside risks on oil prices increased because of US President Donald Trump’s policies, such as initiatives to support higher oil exports by Iraq, said Saxo Bank analyst Ole Hansen. Trump’s tariff policies could also trigger a trade war and curb economic growth, Hansen added.

The US and Ukraine agreed on terms of a draft minerals deal central to Trump’s efforts to bring a swift end to the war in Ukraine, sources familiar with the matter told Reuters on Tuesday.

Fears that a trade war could slow demand have eased worries about tighter near-term oil supply despite fresh US sanctions against Iran, ANZ Bank analysts said in a note.

Trump announced a reversal of concessions given to Venezuela by former President Joe Biden in 2022.

The Biden administration allowed Chevron to expand its production in Venezuela and bring the country’s crude oil to the US.

(Reporting by Nicole Jao and Shariq Khan in New York, Enes Tunagur in London, and Jeslyn Lerh in Singapore; Editing by David Goodman, Rod Nickel, and David Gregorio)

US dollar rises as economic, tariff outlook gauged

NEW YORK – The US dollar rose on Wednesday to move further from recent 11-week lows, as investors assess the strength of the economy and tariffs outlook after the most recent comments from US President Donald Trump.

The greenback stumbled on Tuesday as economic data showed a sharp drop in consumer confidence, the latest in a string of data points that have prompted concerns about the strength of the US economy and persistent inflation, and caused US Treasury yields to tumble.

The benchmark 10-year US Treasury yield plunged nearly 10 basis points (bps) on Tuesday and was last down 4.2 basis points to 4.256% after falling to 4.249%, its lowest since December 11 as an earlier attempt to stabilize dissipated.

“We’ve had a pretty good sell-off since January, a lot of that’s been fueled by the adjustment lower in US real rates, which was largely fueled by the underperforming data we’ve been seeing, including yesterday,” said Brad Bechtel, global head of FX at Jefferies in New York.

“We’re at a stage now where we’re probably just going to chop around for a bit until we hear more about what’s actually happening with tariffs.”

The dollar index, which measures the greenback against a basket of currencies, rose 0.21% to 106.46, with the euro down 0.26% at USD 1.0486.

The greenback had fallen nearly 4% from a more than two-year high hit in January as worries have emerged about US economic growth as well as inflation, as investors deal with shifting tariff deadlines by Trump on Canada and Mexico. Investors are also bracing for the labor market impact from actions taken by Elon Musk’s Department of Government Efficiency.

The Canadian dollar weakened 0.9% versus the greenback to C$ 1.43 while the Mexican peso strengthened 0.3% versus the dollar at 20.406.

Trading in both currencies was choppy after Trump said at a cabinet meeting that they would take effect on April 2, but a White House official, however, said the March 4 deadline for the tariffs on Mexican and Canadian goods remained in effect “as of this moment.”

Even with the recent declines, the dollar has risen in three of the past four sessions and “the market is still respecting the fact that there’s an underlying bid tone to the dollar overall, and that’s kind of why we’re holding in around 106 for now,” said Bechtel.

Markets are currently pricing in 57 bps of rate cuts from the US Federal Reserve by the end of the year, with expectations for a cut of at least 25 bps not topping 50% until the June meeting.

Richmond Federal Reserve President Tom Barkin said on Tuesday he will follow a wait-and-see approach regarding central bank interest rate policy until it is clear inflation is returning to the Fed’s 2% target given the current uncertainty surrounding the economy.

The US Commerce Department said on Wednesday that new home sales plunged 10.5% to a seasonally adjusted annual rate of 657,000 units last month, short of the 680,000 estimate of economists polled by Reuters, hurt by persistently high mortgage rates and unusually cold weather in some parts of the country.

Investors were also eyeing any peace talks over Ukraine, which could affect the euro area economy and the single currency.

Ukraine said on Wednesday it had reached a “preliminary” deal to hand revenue from some of its mineral resources to the United States, before an expected trip to Washington by President Volodymyr Zelenskiy on Friday.

Against the Japanese yen, the dollar weakened 0.04% to 148.96 after falling to 148.56 on Tuesday, its lowest since October 11.

Sterling strengthened 0.09% to USD 1.2677. Bank of England policymaker Swati Dhingra said the BoE’s response to higher tariffs and other trade restrictions will depend on the extent supply chains are disrupted and not just increasing costs, as higher tariffs would likely be offset by softer global growth in the short-term.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski and Daniel Wallis)

Yields, stocks sag as ‘Tariff Man’ flexes muscles, Nvidia reports

The Asia-Pacific economic and corporate calendar is virtually empty on Thursday, allowing investors to take their cue from global drivers, two of which stand out above all others – Nvidia’s earnings and US President Donald Trump’s latest musings on tariffs.

Nvidia reported fourth-quarter earnings after the market close on Wednesday. Revenue grew 78% to USD 39.3 billion, beating estimates of USD 38.04 billion, and the firm’s forecast for first-quarter revenue was also above market estimates. Shares in the artificial intelligence poster child were little changed in choppy, after-hours trading.

Shares in Wall Street’s ‘Magnificent Seven’ and Big Tech more broadly – the runaway market winners over the last two years – have been under heavy pressure this year as investors rotate into unloved sectors at home and cheaper markets abroad.

Indeed, the ‘Mag 7′ this week entered correction territory having fallen more than 10% from their recent peak, so recovery hopes rested almost exclusively on Nvidia. Tech bulls may be disappointed.

Also in US tech, Tesla shares have shed nearly 20% in less than a week, slammed on the news that the electric car maker’s sales in Europe nearly halved last month. Some analysts suggest the slump was due to frustration in Europe about CEO Elon Musk’s close ties to Trump and political involvement in European countries’ domestic affairs.

Investors were on the defensive before Nvidia’s results, after Trump said earlier that he will soon announce a 25% tariff on imports – “on cars, and all of the things” – from the European Union.

Trump also said that steep new tariffs on imports from Mexico and Canada will go ahead on April 2, a month later than he had initially indicated. But a White House official later clarified that the March 4 deadline remained in place “as of this moment”.

‘Tariff Man’ is not for turning. Not yet anyway.

It was interesting to note that although Wall Street opened firmer on Wednesday and was recouping some of its losses from earlier this week, Treasuries didn’t budge. This suggests the fleeting equity rebound was more short-covering than anything else, and that the bond market wasn’t changing its view.

But bond investors did react to Trump’s tariff remarks. The renewed decline in yields suggests they believe escalating trade tensions will hit growth more than they will stoke inflation. At least in the near term.

Most equity markets in Asia, except Japan, posted solid gains on Wednesday. But the region is set to slide into the red at the open on Thursday as investors play safe. Treasuries up, dollar up – the big macro moves in US regular trading hours on Wednesday don’t get much safer.

Here are key developments that could provide more direction to Asian markets on Thursday:

– Fallout from Trump’s latest tariff threats

– G20 finance ministers, central bank governors meeting

– US GDP (Q4, second estimate)

(By Jamie McGeever, editing by Bill Berkrot)

S&P 500 to end 2025 up 9% from here, but Trump-related uncertainties mount

NEW YORK – The S&P 500 will finish 2025 up about 9% from now, but volatility will likely increase as a barrage of tariff announcements, job cuts and policy changes from President Donald Trump fuels uncertainty, according to equity strategists in a Reuters poll.

The year-end target of 6,500 for the benchmark S&P 500, the median forecast of 54 equity strategists, analysts, brokers, and portfolio managers collected February 13-25 is unchanged from a Reuters equity poll in November.

That is 9% above Tuesday’s close of 5,955.25.

The index is up 1.3% so far in 2025 following two straight years of gains exceeding 20%, helped largely by gains in megacap tech companies like Nvidia dominating the race for artificial intelligence technology.

Strategists said they expect solid corporate earnings growth to continue to support gains in equities and they see a possible boost to the economy if Trump, who took office on January 20, goes ahead with his pro-growth agenda for tax cuts and deregulation.

But they say tariffs threaten to add inflationary pressures at a time when the Federal Reserve has paused its rate-cutting cycle.

“The economy is growing, inflation has been sticky but it’s much lower than it was just six months or a year ago, and corporate profits are growing,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, which has a 6,500 “base case” year-end forecast for the S&P 500.

“What could derail some of that are the tariffs. That, to us, is the biggest known unknown for markets and investors,” he said, noting that for now investors may be viewing the tariff announcements as “a negotiating tactic.”

Trump has rolled out a new 10% levy on all Chinese imports and announced tariffs on global steel and aluminum imports.

He said on Monday his proposed tariffs on Mexico and Canada were still set to start next week, and has said he plans to introduce 25% tariffs on autos, semiconductors, and pharmaceutical imports.

More recently, worries about a slowdown have emerged. Data on Tuesday showed US consumer confidence deteriorated at its sharpest pace in 3-1/2 years in February while 12-month inflation expectations jumped.

Also, thousands of US government workers have been fired in recent weeks as part of Trump’s plan to reduce the federal workforce, although those losses have mostly not appeared yet in formal measures of the US job market.

The cuts are being carried out under the direction of Tesla Chief Executive Elon Musk’s Department of Government Efficiency.

Moreover, Trump has verbally supported Russia as he has pushed for a deal to end Russia’s conflict with Ukraine, and has denounced the Ukrainian president as a dictator, creating alarm among some investors about relations between the US and the rest of the world.

When asked whether a stock market correction of at least 10% is likely in the coming three months, 13 of 19 poll participants who answered the question said it was likely or highly likely, while six said it was unlikely.

“Those with a short-term horizon, they could be a little rattled by volatility. We just have so many unknowns as we start 2025,” said Kristina Hooper, chief global market strategist at Invesco in New York. She expects the S&P 500 to end this year at 6,360.

Still, she said, “policies are probably going to be less important than what’s fundamentally happening”, such as with earnings.

Analysts expect S&P 500 earnings growth of 11.1% in 2025, compared with 11.7% in 2024, with growth for the final quarter of 2024 set to be the highest since 2021, according to LSEG.

Even after a choppy start to 2025, the S&P 500 is trading at a multiple of about 22 times forward earnings, compared with a 10-year average price-to-earnings ratio of about 18, based on LSEG data.

Strategists continued to cite financials as among their top sector picks for 2025, partly because of prospects for deregulation under Trump.

The poll has the Dow Jones industrial average finishing this year at 47,024, up from 46,600 in the Reuters November poll. The index closed at 43,621.16 on Tuesday.

(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak, Stephen Culp, Sinead Carew, Noel Randewich, Chibuike Oguh, and Alden Bentley; Polling by Sarupya Ganguly and Jaiganesh Mahesh; Editing by William Maclean)

US yields retreat as Trump may delay tariffs, after solid auction

NEW YORK – US Treasury yields fell on Wednesday, after trading higher for most of the session, following solid demand for the seven-year note auction and news that potential US tariffs on Mexico and Canada would only take effect on April 2, about a month later than an earlier deadline.

Earlier this month, the Trump administration had set March 4 as the effective date for 25% duties on goods from Mexico and non-energy goods from Canada. US President Donald
Trump made the remarks about tariffs during his administration’s first cabinet meeting.

In afternoon trading, the yield on the benchmark US 10-year Treasury note fell 4.9 basis points (bps) to 4.258%. The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 1.6 basis points to 4.08%.

Strong demand in the USD 44 billion seven-year note auction on Wednesday, adding to successful sales of five-year and two-year notes earlier in the week contributed to falling yields on Wednesday, said Eric Jussaume, director of fixed income at Cambridge Trust Wealth Management, a division of Eastern Bank.

Post-auction, US seven-year notes were down 4.9 bps at 4.164%.

In other parts of the bond market, one segment of the US Treasury yield curve seen by some analysts as a possible recession indicator briefly inverted for the first time this year on Wednesday. The spread between yields on two-year and five-year US Treasuries was last at 0.3 bps.

Markets will look at GDP and durable orders data due on Thursday to see if there are stronger signs of slowdown in the US economy that could accelerate the expected pace of interest rate cuts. A key element for Treasury yields on the near term will be the US Personal Consumption Expenditure (PCE) inflation rate, the Federal Reserve’s preferred inflation gauge, to be released on Friday.

“The bond market is still more prone to rallying, as the scenario with potential interest rate cuts later in the year has not changed,” said Ralph Axel, interest rates strategist at BofA Securities. Axel cites swap rates that reflect market expectations of a 60-bp rate reduction in 2025.

According to the CME’s FedWatch tool, the highest odds for the first 25-bp rate cut are in June’s Fed meeting, with a 53% probability. On Wednesday afternoon, the highest probability for a second rate cut was in the September meeting, with 37%.

The House passed late on Tuesday a version of the budget to advance the administration’s USD 4.5 trillion tax-cut plan. The plan calls for spending cuts, but their size and effect on the deficit are still unclear.

“The initial bill passed on the House would increase the deficit,” Cambridge Trust’s Jussaume said.

Treasury Secretary Scott Bessent said on Tuesday that Trump’s economic agenda would help bring down interest rates, particularly on the benchmark 10-year Treasury note, by restoring market confidence in the long-term US fiscal profile.

Padraic Garvey, ING’s head of global rates and debt strategy, said investors have yet to see big effects of the savings of the Department of Government Efficiency (DOGE) on spending, and a clear path for deficit reduction. This year, spending has been higher than in the same period a year earlier.

(Reporting by Tatiana Bautzer; Editing by Gertrude Chavez-Dreyfuss, Hugh Lawson, and Marguerita Choy)

Oil prices fall 2% to two-month low on worries about US economy

NEW YORK – Oil prices fell about 2% to a two-month low on Tuesday on weak economic news from the US and Germany that fed fears of slower energy demand, along with signs from several countries that oil output was on track to increase.

Brent futures fell USD 1.76, or 2.4%, to settle at USD 73.02 a barrel, while US West Texas Intermediate (WTI) crude fell USD 1.77, or 2.5%, to settle at USD 68.93.

That was the lowest close for Brent since December 23 and WTI since December 10.

US data showed consumer confidence in February deteriorated at its sharpest pace in 3-1/2 years, with 12-month inflation expectations surging.

Analysts said President Donald Trump’s stated plans for higher tariffs have raised inflation worries at the US Federal Reserve. This could lead the Fed to keep interest rates higher, which in turn could slow economic growth and energy demand.

Trump said tariffs against Canadian and Mexican imports, scheduled to start on March 4, are “on time and on schedule,” which may boost oil prices by reducing supplies from both countries.

But “tariffs are increasingly being viewed as a negative influence on global economic growth that could force additional downside revisions in world oil demand,” analysts at energy advisory firm Ritterbusch and Associates said.

Data showed the German economy shrank by 0.2% in the final quarter of 2024 from the previous quarter. German election winner Friedrich Merz ruled out a quick reform to state borrowing limits known as the “debt brake,” which some investors have urged to boost the economy.

OIL OUTPUT COULD RISE

Also weighing on oil prices was the possibility of a peace deal between Russia and Ukraine that “foreshadows the lifting of Russian sanctions, potentially welcoming unfettered Russian supply back to the market,” said Tamas Varga at oil broker PVM.

Russia is the third-biggest oil producer behind the US and Saudi Arabia and a member of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allied countries.

In Iraq, the second-largest OPEC producer, oil major BP BP.L signed a deal to redevelop four Kirkuk oil and gas fields. Iraq is also waiting for Turkey’s approval soon to restart oil flows from the Iraqi Kurdistan region.

In Nigeria, another OPEC member, oil production rose to 1.8 million bpd, up from just 1 million bpd over a year ago.

In the US, Trump said he wanted the Keystone XL pipeline built and pledged easy regulatory approvals for the project that would move crude from Canada to the US.

US OIL INVENTORIES

US oil inventory data from the American Petroleum Institute (API) trade group is due on Tuesday and US Energy Information Administration data is due on Wednesday.

Analysts forecast energy firms added about 2.6 million barrels of oil to US stockpiles during the week ended February 21.

If correct, that would be the first time energy firms added oil into storage for five weeks in a row since March 2024. That compares with an increase of 4.2 million barrels during the same week last year and an average build of 2.3 million barrels over the past five years (2020-2024).

(Reporting by Scott DiSavino, Paul Carsten, and Colleen Howe; Editing by Kevin Liffey, David Evans, Christina Fincher, David Gregorio, and Nia Williams)

Forget stock tweets, Trump 2.0 is watching bonds: McGeever

ORLANDO – In US President Donald Trump’s first term in office, he regularly posted boastful tweets when Wall Street hit fresh highs, taking credit for the record stock prices that he believed would fuel wider economic growth.

But this time around, it is not the stock market that Trump is looking at as the primary gauge of US consumer well-being and economic strength. It is the bond market, and specifically, longer-term borrowing costs.

In a note last week, JP Morgan analyst Antonin Delair compared Trump’s 3,803 social media posts on ‘market-relevant topics’ in his first term with the 126 since his election victory in November.

Delair calculates there were 273 posts in his first term with “direct reference to markets”, of which 156, or 57%, were specifically about “US stock market strong performance” and 85, or 31%, were on the “Fed, level of rates, and dollar”.

In contrast, only one of Trump’s 126 posts since November has been on the stock market and five, or 42%, have been on rates and the dollar. True, the current sample size is more limited, but the discrepancy is notable and, frankly, understandable given the current economic backdrop.

ON THE ‘WRONG’ SIDE

When the Fed started lowering interest rates in September, long-term bond yields were expected to follow. But for various reasons – including worries over the deficit, debt and inflation outlooks – that did not happen. Rates on mortgages and other long-term loans shot up, putting the squeeze on borrowers.

Treasury Secretary Scott Bessent has repeatedly said he and Trump are focusing on the 10-year yield and implementing policies that will bring it down. On Tuesday, he once again stated that’s where he is paying “particular attention”.

Elon Musk, the billionaire CEO of Tesla who has been tasked with taking a scythe to federal spending, has said anyone selling bonds will be “on the wrong side” of that trade.

Musk and Bessent’s sway over the direction of long-term yields may be marginal in a USD 28 trillion market that is driven by a multitude of global factors, but as luck would have it, they seem to be getting their wish.

BONDS RALLY

A string of recent US economic data points – purchasing managers index reports, retail sales, consumer sentiment, and manufacturing numbers – suggests US economic activity is deteriorating. Treasuries are on a roll, and yields are tumbling, as investors pile into bonds as a safe-haven alternative to crumbling stocks.

The 10-year Treasury yield slumped almost 10 basis points on Tuesday to 4.28%, a low not seen since mid-December. And the two-year yield touched its lowest level since before the election and is sliding towards 4.00%.

This move could have legs. For one, those short positions that Musk warned about are, by some measures, near record high levels. So there is plenty room for further short covering, which would accelerate the decline in yields.

But here is the problem. Trump and Bessent want yields falling because energy prices are coming down, inflation is cooling, and the “Goldilocks” economy is humming along nicely, not because it is on the verge of rolling over.

So Trump may get his lower yields, but he should be careful what he wishes for.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Marguerita Choy)

Growth worries put brakes on Treasury yields’ ascent

NEW YORK – A weakening economy and what looks to have been an overly aggressive “Trump trade” has led some Treasury market participants to reevaluate calls for how high US yields will go as speculation the Federal Reserve may cut rates several times this year re-emerge.

Yields tumbled after data on Friday showed US business activity nearly stalled in February, while consumer fears about inflation surged. Data on Monday further showed US consumer confidence deteriorated at its sharpest pace in 3-1/2 years in February.

Government job cuts by Elon Musk’s Department of Government Efficiency (DOGE) are raising fears they will lead to a weaker labor market and hit consumer spending. The Citigroup economic surprise index also fell further into negative territory, indicating data is coming in worse than economists predicted.

Peter Tchir, head of macro strategy at Academy Securities, has cut his target on 10-year Treasury yields to 4.6%, after formerly expecting 4.8% or higher, and said “I’m beginning to think that that might even be too high.”

“It does feel like this growth prospect isn’t materializing,” Tchir said. “There’s so much noise coming out of DC, or Mar-a-Lago, that it’s hard to tell what to focus on,” he said referring to President Donald Trump’s Florida resort and residence. “But I feel like everything now is giving people pause and hesitancy and it doesn’t take long for that to feed into the economy or market.”

Trump’s election in November raised expectations for stronger economic growth on looser business regulations and the potential for more tax cuts. Tariffs and a crackdown on illegal immigration, meanwhile, are seen as potentially adding to inflation.

Data from December reinforced the perception of a robust economy, which along with inflation concerns prompted the Fed to pause the easing cycle that brought its policy rate down a full percentage point since its initiation in September.

That sent Treasury yields higher and led investors to cut bets on how many times the Fed will cut rates this year.

The benchmark 10-year yield traded as low as 3.60% in September before traders began pricing in higher odds of a Trump victory. It reached 4.81% in January, a 14-month high and was at 4.31% on Tuesday.

Now, some analysts say the benefits of Trump’s fiscal shifts may take longer to be realized. And DOGE’s cost-cutting, while potentially improving the fiscal picture longer term, could hurt the economy in the shorter run.

“The risk in the short term is that many of the layoffs that the federal government has undertaken in the last four weeks create a short-term downdraft in consumer spending, and that expands into more material economic slowing,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

“The stimulative plans from tax cuts and so forth will take much longer, if not years, to add to the economy, and so there’s a little bit of a timing problem with how fiscal policy is evolving right now that could cause a slowdown,” LeBas said.

Fed funds futures traders are now pricing in at least two 25 basis point cuts this year, after seeing only a roughly 50/50 probability of a second cut early last week.

Some of the recent drop in yields has come from other factors that are more favorable for the market. These include US Treasury Secretary Scott Bessent’s statement that there are no near-term plans to increase long-term debt issuance, and a discussion by Federal Reserve officials about a possible pause or taper to its quantitative tightening program.

Market moves have also so far been orderly and are not yet reflecting panic about an imminent recession as traders wait for more clarity around tariffs and the strength of the labor market.

“I’d say the US economy continues to slowly slow, which is a key reason that you’re seeing yields chopping around here and not really plunging,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management.

“You saw excitement around America First policies – deregulation, the potential for lower taxes,” she said of the run-up in yields around the election. “We are seeing a bit of a reversion there as we have more evidence that it’s going to take time for clarity around some of these policies.”

(Reporting By Karen Brettell; Editing by Alden Bentley and Nick Zieminski)

US yields tumble amid policy uncertainty, signs of US deceleration

NEW YORK – US Treasury yields dropped sharply on Tuesday, with the benchmark 10-year yield hitting its lowest in 10 weeks, as investors sought a refuge in bonds from signs of deceleration in the US economy and persistent uncertainty about the effects of tariffs pursued by President Donald Trump.

Yields accelerated their fall after news that the US consumer confidence index declined to 98.3 in February, the lowest reading since June. Meanwhile the risk off mood that lifted bond prices and knocked yields was also evident on Wall Street, where the tech-heavy Nasdaq led declines on Tuesday, hitting a six-week low.

“We are in a correction mode in US equities. If that trend persists there will be wealth destruction. The lower-income consumer is already struggling and that could make wealthy consumers more cautious,” said Jack McIntyre, portfolio manager at Brandywine Global Investment management in Pennsylvania.

Consumer confidence deteriorated sharply in February to an eight-month low, with the uncertainty about the policies of Trump’s administration contributing to the drop.

US single-family house prices increased in December, another blow to affordability alongside elevated mortgage costs, even as the housing supply increases.

Aside from growing signs of a slowdown, investors worried about Trump’s economic policies after he said proposed tariffs on Mexico and Canada were still set to start next week.

“We are beginning to see some cracks in the markets regarding the economic outlook and anxiety about some of the conflicting policies,” said Robert Tipp, head of global bonds at PGIM Fixed Income.

The bond market as a result is betting on more rate cuts by the Federal Reserve this year, compared to a few weeks ago. On Tuesday, US rate futures priced in 61 basis points (bps) of easing in 2025, compared with 44 bps late on Monday, according to LSEG calculations.

Futures also showed that markets are expecting the first rate cut to come in June rather than July. The higher odds for a second cut also moved to September and October.

US two-year yields, which typically move in step with interest rate expectations, dropped 5.8 bps to 4.1%, after reaching earlier 4.07%, the lowest since November 1.

In mid-afternoon trading, the yield on the US 10-year Treasury note was down 8.7 basis points to 4.306%, after earlier sliding to the lowest since December 12. The yield on the 30-year bond declined 8.4 bps to 4.564%.

The US Treasury sold USD 70 billion in five-year notes on Tuesday, with demand equivalent to 2.4 times the offering, a day after a strong two-year note auction. Yields on five-year notes fell 3 basis points after the auction to 4.12%.

A sharp drop in business activity reported last week was seen as the first sign of an economy slowdown.

The Trump administration’s promises to reduce government spending so far are the “right talk,” said McIntyre, but investors have yet to see a real change in longer-term trends for the US deficit and debt.

Markets are still skeptical of the immediate effects on the deficit of spending cuts spearheaded by Elon Musk’s Department of Government Efficiency, known as DOGE. A significant deficit reduction would “require more legislative progress on spending cuts,” PGIM’s Tipp said. Substantive budget changes would require congressional approval.

(Reporting by Tatiana Bautzer; Editing by Gertrude Chavez-Dreyfuss, Will Dunham and Kevin Liffey)

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