By Linh Tran, Market Analyst at XS.com
The S&P 500 closed the February 23 session down 1.04% as defensive sentiment intensified following new developments related to U.S. trade policy. The proposal to impose a temporary 15% import tariff on most goods, introduced after a ruling by the U.S. Supreme Court (SCOTUS) on previous tariff measures, has heightened concerns over inflation risks and rising input costs for businesses.
From a macroeconomic perspective, the possibility of renewed imported inflation – while CPI (2.4% y/y) and core PCE (+0.4% m/m) remain above the 2% target – has fueled concerns that the Federal Reserve may maintain a cautious monetary policy stance for longer than previously expected. This, in turn, has exerted pressure on equity valuations, particularly on rate-sensitive sectors.
Selling pressure was concentrated in the technology and financial sectors, two of the largest weightings within the S&P 500. The heavy weighting of mega-cap stocks makes the index particularly sensitive to movements in its key constituents. In the latest session, IBM plunged 13.15% amid concerns that AI could disrupt its traditional services business model. Tesla (-2.91%) and Alphabet (-1.11%) also faced pressure as investors reassessed competitive dynamics and profit margins in an evolving technology landscape.
Meanwhile, financial stocks recorded sharp declines, with American Express (-7.2%), Capital One Financial (-8.84%), and KKR (-8.89%) all retreating significantly. This reflects heightened caution over rising funding costs and the potential for profit margins to come under pressure should interest rates remain elevated.
The technical pullback in mega-cap stocks not only dragged the broader index lower but also weighed heavily on market sentiment, given that these names had been the primary drivers of the previous rally.
Overall, the latest developments suggest that the market is shifting into a policy-driven repricing phase rather than reacting solely to corporate earnings results.
In the near term, the S&P 500 will be primarily influenced by tariff developments, inflation data, and U.S. Treasury yield trends. If price pressures persist and expectations for rate cuts continue to be pushed back, equity valuations are likely to remain under strain. At the same time, global capital reallocation trends could limit upside momentum and sustain sectoral divergence within the index.
From a personal perspective, the current phase appears more consistent with a valuation-driven correction rather than the beginning of a deep cyclical downturn. Corporate earnings fundamentals remain relatively stable; however, with interest rates expected to stay elevated and policy uncertainty unresolved, the S&P 500 may struggle to establish a sustainable upward trend in the near term. The medium-term outlook will depend on whether growth moderates in an orderly manner or deteriorates more sharply, as well as on the stability of inflation expectations in the months ahead.