By Saqib Iqbal Ahmed, Suzanne McGee and Lewis Krauskopf
NEW YORK (Reuters) – Risks to the U.S. stock market are piling up as cracks emerge in the technology trade and the path for interest rates is clouded by persistent inflation worries that are being exacerbated by the potential for looming tariffs.
Mixed results from megacap companies Microsoft, Tesla and Meta Platforms on Wednesday threatened to add to volatility following ruptures earlier in the week in the artificial intelligence trade that has helped propel tech’s stock market leadership.
The Federal Reserve also paused its rate-cutting cycle on Wednesday — a decision that investors had been bracing for. Prospects for when the U.S. central bank could resume easing remained in doubt amid expectations President Donald Trump will enact trade and other policies that stand to be inflationary.
“Everything that is going on right now, from economic data to markets news and tariffs, adds up to a lot more uncertainty across all markets,” said Dustin Reid, chief strategist of fixed income at Mackenzie Investments in Toronto.
“We are putting less risk on the table; cutting position sizes, because we don’t want to have as much risk as we would have had otherwise.”
In its first meeting of 2025, the Fed kept its benchmark rate at 4.25%-4.50%, after reducing the rate by a full percentage point last year. The annual pace of inflation has stayed above the central bank’s 2% target, and Fed Chair Jerome Powell said there would be no rush to cut rates again until inflation and jobs data made it appropriate.
“A pause in policy rates is likely to be with us for a number of months as more data comes in,” Rick Rieder, BlackRock’s chief investment officer of global fixed income, said in written commentary.
Markets kept intact expectations for roughly two more interest rate cuts this year. The S&P 500 closed down 0.5%, while the benchmark 10-year Treasury yield edged lower to 4.53%.
Uncertainty over the Trump administration’s policies continues to keep investors on edge.
Trump has set a Saturday deadline for imposing 25% tariffs on goods from Canada and Mexico, two of the largest U.S. trading partners.
While these tariffs may be a negotiating tool, the administration’s general willingness to impose them on foreign imports remains a risk that could revive inflation and cloud the outlook for rate cuts and the broader economy
Powell said it was too soon to say what Trump’s policies will do, but that “we are going to be watching carefully” what is being put in place.
