In This Article:
The current economic landscape remains uncertain as the market (^GSPC, ^IXIC, ^DJI) faces mixed signals from inflation data and ongoing tariff issues.
Yahoo Finance Senior Markets Reporter Josh Schafer joins Catalysts host Madison Mills to discuss how tariff uncertainty, rather than economic data, may be the dominant factor driving market volatility. While strategists struggle to price in the fluctuating tariff environment, the Federal Reserve takes in the latest inflation data ahead of its next interest rate decision at the central bank's March FOMC meeting next week.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
Well, stocks are mixed this morning following that better than expected inflation read for the month of February. But is one inflation print enough to ease market concerns about economic data and policy uncertainty? Our very own Josh Shafer joining me now to discuss. Josh, it seems like investors think the Fed is back with a dovish vibe heading into the next meeting. Is that actually going to be the case? What are you thinking?
Yeah, so I mean, economists reacting to this report that I've been reading the research this morning sort of think this doesn't really change much for the Fed at this point, largely because you still need PPI to come tomorrow, right? So normally consumer prices and producer prices sort of equal a proper estimate for PCE, which is the Fed's preferred inflation gauge that we get at the end of the month. So you don't quite have that read through yet, but there have been some strategist, some bulls out there like Funstrats, Tom Lee, that have said the Fed put is still in and you need positive inflation data in order to have that. So the concept of the Fed put would be, if we really are concerned about the economy and we see a weakening economy, the Fed would step in and cut rates, right? And the Fed would cut rates and that would help your swelling economy. The issue with that take has been, well, inflation is still well above the Fed's target. We're not seeing a lot of progress on inflation. Tariffs could be inflationary, so you can bind all of that and it sort of eliminates the Fed's ability to maybe help out the economy in that sense. So if you have positive inflation readings like this, it does bring it back into the picture and it's definitely something that bulls are mentioning right now and bringing up as a potential case for what could help us rebound. But you just mentioned stock future, or sorry, stocks now where the market is open. The actual the actual indexes are mixed, right? After we just got some headlines about Canada reciprocal tariffs. And I think that speaks to perhaps the market's larger issue right now.
Right. Right. Right.
Mhm.
Yeah, it's interesting seeing that the tech names continue to kind of give us this lift this morning, but as we get these tariff headlines throughout the day, as we have started to learn, this has started to become a pattern, that could start to weigh on equities. I wonder Josh, how you're thinking about the number of price target decreases that we've started to see, the calls to go outside of the U.S. to European equities, does the tariff picture start to matter more than the economic data points that we're getting in or does the economic data still matter?
Yeah, so the strategists that I was speaking with yesterday and the story that's on our website right now from this morning, all sort of argued it's the tariff picture, right? So there was a chart that Michael Kantrowitz from Piper Sandler had showing fiscal policy uncertainty soaring, right? So you're looking at this chart here, fiscal policy uncertainty is in green, soaring. What came right as fiscal policy uncertainty soared, your major drawdown in the S&P 500, right? So in order for that S&P 500 to come back substantially, you'd probably need the green line to move lower. What actually moves the green line lower? Some level of understanding of what these tariffs are actually going to be, right? Something where we're not doing this every two hours talking about reciprocal tariffs. Maybe we'll double these tariffs on Canada. Ah, I was just kidding about doubling the tariffs on Canada. Like the market is really struggling with that, right? And I thought one thing that Jack Manley from JP Morgan Asset Management pointed out to me yesterday is it's about figuring out how to price this in, right? And it's very hard to price in US tariffs just blanket, right? If we had just talked about 25% tariffs on Canada and Mexico, that's a challenging thing to price in for equity strategists. But the problem is, you then have to price in how are these countries going to respond? Then how would the US respond to these countries? You can see how confusing this is getting and it basically becomes a area of price discovery for the stock market that is just very challenged. And I think that's what you've been seeing with this up and down nature of the market on a daily basis is right now, we do not have enough answers until we have enough answers. A lot of strategists are saying maybe nibble at this dip, but they're not that confident in full on buying the dip until we have clarity on what the rest of the year could actually look like.
Right.
Yeah.
Yeah, what we've heard from a lot of our interviews this morning has been just wait for the dip to go down even more because there's no sign of certainty coming anytime soon. So why not just get it at even more?
Mhm.
It's a tough area to be confident right now, right? I think it's overall with the tickets, man.
Yeah.