The week began with market reactions to the announcement that the Supreme Court had struck down President Trump’s sweeping 2025 tariff policies. The Court ruled in a 6-3 decision that Trump had exceeded his authority in imposing emergency import taxes. Equity markets rallied on the news and snapped a 5-week losing streak to start the year as they welcomed the removal of an overhang that had weighed on investor sentiment and global trade flows. The Trump Administration immediately announced they would use a separate, esoteric 1970s trade law to implement new, universal 10% tariffs on global trade partners, later revising that figure upwards to 15%.
On Tuesday, President Trump’s State of the Union speech triggered swift and mixed market reactions. His proposals included a $1,000 Federal 401k match and a ban on institutional home buying. This boosted retail brokerage and fintech stocks while putting downward pressure on real estate firms. During the speech, Trump also hinted at further trade measures, in spite of the Supreme Court’s earlier ruling. Markets reacted cautiously to Trump’s optimistic claims about inflation and growth, which conflicted with recent economic data, adding to a volatile week for equities, rates and currencies.
The recent fall in the 10-year Treasury has pushed the average on a 30-year fixed rate mortgage below 6%. This has led to higher new home sales than a year ago and a 150% increase in refinances, according to a report by the Mortgage Bankers Association this week. StreetMatrix real estate agent Jonathan Miller told Fox News Digital, “The growth in mortgage demand reflects the gradual erosion of the lock-in effect, which began in early 2022 with the Fed [pivoting] to higher interest rates. Rising inventory in many markets has brought more choices to consumers and slowed home price growth.”
Credit spreads on investment grade debt are beginning to grow with weekly spans increasing this week by the most since last November. Just one month after credit spreads hit multi-decade lows, investors are worried that risks in the tech sector and evolving problems in private credit may disrupt the relative calm we've seen in public debt markets of late. Earlier this week, UBS reported debt default rates could spike to as high as 15% if A.I. sparks an "aggressive" disruption among corporate borrowers. International concerns over credit markets continue after Market Financial Solutions, Ltd. (MFS), a U.K. based mortgage financier, collapsed into a form of insolvency this week under accusations of fraud and double pledging of assets. Barclays Plc, Atlas SP Partners, Jefferies Financial Group, Banco Santander SA, Wells Fargo and Castlelake LP are all directly tied to MFS with potentially billions in exposure. The news echoes recent concerns about looser underwriting standards, which could lead to problems down the road for public and private credit markets.
KEY INDICATORS THIS WEEK
PPI – Increased at 0.5% MoM and 2.9% YoY versus consensus estimates for 0.3% and 2.6%, respectively.
Conference Board Consumer Confidence – Rose 2.2 points to 91.2 in February as pessimistic expectations for the future waned.
Next Week – Jobs week!