To The Moon

On February 21, the U.S. stock market experienced its sharpest decline in two months as economic concerns, disappointing corporate earnings, and policy uncertainties weighed on investor sentiment.

- S&P 500 $S&P 500(.SPX)$  fell 1.7% (-104.39 points) to close at 6,013.13.

- Dow Jones Industrial Average $DJIA(.DJI)$  dropped 1.7% (-748.63 points) to finish at 43,428.02.

- Nasdaq Composite $NASDAQ(.IXIC)$  tumbled 2.2% (-438.36 points) to 19,524.01.

Key Reasons Behind the Market Decline

1️⃣ Weak Economic Data

Several economic indicators signaled a slowdown in the U.S. economy, raising concerns about future growth:

Weak economic data

a) Slowing Business Activity: 

Recent data suggests that U.S. business activity is nearing stagnation, with the services sector experiencing a noticeable deceleration.

b) Declining Consumer Confidence: 

The consumer confidence index in February dropped to its lowest level since November 2023, while inflation expectations surged to a 29-year high—indicating that consumers are increasingly worried about rising prices.

c) Struggling Housing Market: 

Due to persistently high mortgage rates, existing home sales in January fell short of market expectations, reflecting a cooling real estate sector.

2️⃣ Corporate Earnings and Sector Sell-offs

Earnings reports and regulatory issues put additional pressure on stocks, particularly in retail and healthcare:

Corporate earnings

Retail Sector Weakness:

Walmart (-6.5%) $Wal-Mart(WMT)$  issued a cautious earnings outlook, sparking a broader sell-off in retail stocks.

Target (-4.2%) $Target(TGT)$  and Costco (-3.1%) declined in response to Walmart's warning about slowing consumer spending.

Healthcare Stocks Slump:

UnitedHealth Group (-7.2%) $UnitedHealth(UNH)$ faced heavy selling after news broke that the U.S. Department of Justice is investigating its billing practices for Medicare claims.

3️⃣ Tech Stocks Under Pressure

Investor sentiment toward technology stocks has turned more cautious due to several factors:

Tech stocks

Earnings Growth Expectations Weaken:

Analysts have downgraded their earnings forecasts for tech companies, with the proportion of upward earnings-per-share (EPS) revisions for S&P 500 tech stocks falling from 58% to 50%, signaling waning confidence in the sector.

Institutional Selling:

The California Public Employees' Retirement System (CalPERS), one of the largest pension funds, reduced its holdings in major tech stocks, selling:

- 5.6 million shares of Nvidia

- 257,000 shares of Super Micro Computer

This suggests that some institutional investors view current tech stock valuations as too high.

Rising Global Competition:

The rapid rise of Chinese AI firms, such as DeepSeek, is intensifying competition for U.S. technology companies, adding another layer of uncertainty for investors.

4️⃣ Uncertainty in Trade Policy

Tariff Concerns:

Former U.S. President Donald Trump announced a proposal to impose 25% import tariffs on pharmaceuticals, automobiles, and semiconductors, fueling fears of a renewed global trade war

This policy uncertainty further rattled the stock market, adding to concerns about supply chain disruptions and rising costs for businesses.

Trade policy and tariff

Market Outlook

With multiple risk factors—including economic headwinds, corporate earnings disappointments, institutional selling, and trade policy uncertainty—the stock market faces significant resistance to sustained gains. The overall sentiment remains cautious, as investors weigh the risks of potential further declines.

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