U.S. stocks pressured by Trump's tariffs, market focuses on CPI data and inflation expectations

The U.S. stock market has recently been impacted by the uncertainty surrounding Trump's tariff policies, with investors concerned about the potential effects of tariffs on consumers and the overall economy, leading to persistently low market sentiment. In this context, the upcoming Consumer Price Index (CPI) data for February is highly anticipated, as investors hope to use it to assess whether current concerns about stagflation are justified.

According to economists surveyed by foreign media, the CPI for February in the U.S. is expected to rise by 0.3% month-on-month, with the year-on-year growth rate expected to decrease from 3.0% last month to 2.9%. The core CPI (excluding food and energy prices) is projected to increase by 0.3% month-on-month and grow by 3.2% year-on-year.

According to the Zhitong Finance APP, market analysts believe that if the CPI data exceeds expectations, combined with the possibility that Trump's tariff policies may exacerbate inflation, the Federal Reserve may be forced to slow down the pace of interest rate cuts, which could deepen stock market sell-offs and even push the Nasdaq index closer to bear market territory. However, if the CPI data is moderate or below expectations, it may enhance investor confidence in the Fed's interest rate cuts, thereby boosting market sentiment. Nonetheless, XTB Research Director Kathleen Brooks stated that unless Trump relaxes some policies that severely impact the economy, the market may struggle to achieve true stability.

Wall Street generally believes that Wednesday's CPI data is only a preliminary reflection of the impact of Trump's tariffs on inflation. In February of this year, Trump imposed a 10% tariff on Chinese goods, with China holding a significant share in the imports of home goods, clothing, and electronics. Bank of America Global Research economists Stephen Juneau and Jeseo Park pointed out that this could drive up inflation in the U.S.

However, there are still many uncertainties surrounding Trump's tariff policies, and investors may need more time to see their full impact reflected in the CPI data. Brooks noted that if this CPI data shows a significant upward trend due to tariff factors, it could trigger widespread market risk aversion, negatively affecting both the bond and stock markets.

In addition to the CPI data, the market will also closely monitor the University of Michigan's Consumer Inflation Expectations Index, which will be released on Friday and will help assess consumers' inflation expectations for the coming year. Last month, this index surged from 3.3% to 4.3%, marking the highest level since November 2023 and representing the fifth occurrence of such a large single-month increase in the past 14 years.

Tani Fukui, Senior Director of Global Economic and Market Strategy at MetLife Investment Management, believes that this index needs to be interpreted with caution, as consumers' inflation expectations are often influenced by short-term price fluctuations. She stated that if consumer inflation expectations rise significantly, it could further pressure the stock market and impact consumer spending, creating a vicious cycle. However, if the changes are only moderate, they will not pose a significant threat to the market.

On Tuesday, all three major U.S. stock indices closed lower. The Dow Jones Industrial Average fell by 478 points, a decrease of 1.14%, the S&P 500 index dropped by 0.76%, and the Nasdaq index declined by 0.18%