Tech Sector Volatility Adds Pressure

The U.S. stock market encountered heightened risks as cracks appeared in the tech sector’s dominance. Mixed results from tech giants like Microsoft, Tesla, and Meta Platforms added to volatility, particularly as the artificial intelligence trade faltered earlier in the week. Microsoft’s Azure cloud unit reported slower growth, while Meta’s revenue exceeded expectations but flagged weaker forecasts for the coming quarter.

Fed Holds Rates Steady Amid Inflation Concerns

The Federal Reserve paused its rate-cutting cycle during its first 2025 meeting, keeping the benchmark rate at 4.25%-4.50%. Inflation remains above the Fed’s 2% target, with Chair Jerome Powell signaling no rush to reduce rates further. Uncertainty surrounding President Trump’s tariff policies also weighed on the outlook.

Trade Tariffs Create Economic Uncertainty

President Trump’s potential 25% tariffs on imports from Canada and Mexico, set to take effect Saturday, created additional unease. While intended as a negotiating tool, such tariffs risk stoking inflation and complicating the Fed’s future policy decisions.

Market Valuations Under Scrutiny

The S&P 500 slipped 0.5% on Wednesday, while the 10-year Treasury yield fell to 4.53%. Despite recent volatility, the market’s valuation remains historically high, with the S&P 500 trading at 22 times earnings estimates. Analysts are increasingly cautious about concentrated investments in tech stocks, urging diversification across sectors.