Wall Street takes lumps after poor inflation data, new tariffs

MANHATTAN (CN) — As investors continue to contend with the fallout over quickly evolving artificial intelligence, an old adversary — inflation — popped its head up this week to ding markets.

Investors already were unhappy with a new tariff regime announced over the weekend by the White House, with equities shedding value on Monday. However, losses compounded on Friday after the delayed release of the monthly producer price index.

The PPI, which measures the prices paid for products by companies, showed a 0.5% increase in prices last month, compared with the predicted 0.3% increase. Core PPI, which excludes volatile prices for food, energy and trade services, rose by 0.3%.

“This morning’s higher inflation data is one more thing to worry about within the ‘traditional’ economic analysis of price stability and full employment, even before investors factors in the disruptive potential of AI’s impact on the economy,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

By the closing bell on Friday, the Dow Jones Industrial Average lost 648 points for the week, while the Nasdaq shed 218 points and the S&P 500 declined by 31 points.

Scant other economic data this week shows Main Street continues to harbor worries about geopolitical tensions surrounding Iran, an ever-changing tariff landscape and persistent inflation.

Consumer confidence increased in February though it still remains under the high points seen in 2024, according to The Conference Board. The inflation expectations for the upcoming year fell slightly, and the labor component of the board’s survey increased slightly.

“Despite the rebound, the trend is still negative,” said Jeffrey Roach, chief economist at LPL Financial, noting the broader trend over the past 14 months is negative due to pessimism over geopolitical tensions and trade uncertainty.

However, a related survey of CEOs by the board found significant increase in confidence in the first quarter of 2026. The survey noted about one-third of CEOs expect to revise capital spending plans upward over the next year, though they plan to continue a “low hire, low fire” approach.

Nearly three-fourths of CEOs surveyed said higher costs are the result of tariff increases, with 44% of respondents saying they have passed or intend to pass those costs onto customers.

Investors and businesses are pinning hopes on an interest rate cut when the Federal Reserve meets next week, but Fed officials have indicated they are reticent to cut rates unless labor conditions deteriorate significantly.

In a speech this week, Fed Governor Christopher Waller worried the last jobs report, which showed a surprising 130,000-job gain, may have been “more noise than signal.”

Waller said if the February jobs report shows stronger job creation and a low unemployment rate, he would favor keeping interest rates steady, but if not he would support a 25-basis-point reduction in the federal funds interest rate. “As things stand today, I rate these two possible outcomes as close to a coin flip,” he said.

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