S&P 500 Drops as AI Balloon Starts to Pop

The S&P 500 (Index: SPX) dropped 3.1% week over week, closing at 5,770.20 on Friday, 7 March 2025.

Much of the week’s headlines tried to connect U.S. tariffs to the market downswing, but that misses a bigger story that’s developing. The Artificial Intelligence balloon may be beginning to pop.

You have look at the week’s second-tier market-moving headlines to get that part of the story. Many of the biggest drops were among the stocks of companies that had been riding high on the AI wave. And for what it’s worth, AI-leader Nvidia (NASDAQ: NVDA) dropped well below the $3 trillion capitalization mark during the past week. Since the beginning of the year, NVDA has lost $1 trillion of its market capitalization.

Despite that loss, NVDA is still the third-largest company within the S&P 500. As such, what’s going on with it and other AI-related stocks is enough to pull the S&P 500 lower. The latest update of the alternative futures chart shows the trajectory of the S&P 500 is running below the projected trajectory associated with investors focusing their attention on the upcoming future quarter of 2025-Q2.

That situation suggests the negative change in fortune for the AI sector of the stock market may be prompting a change in market regime. It’s still too early to make that determination for sure, but it’s a potential to which we’re paying close attention behind the scenes.

Here are the week’s market moving headlines:

Monday, 3 March 2025

• Signs and portents for the U.S. economy:

• Oil slides to three-month low as OPEC brings production cuts back online starting April 1
• Trump says Canada, Mexico tariffs to take effect on Tuesday; stocks tumble

Fed minions say economy still growing, think recent data looks risky:

• Fed’s Musalem expects continued economic growth, but sees risks in recent data

Bigger trouble, stimulus developing in China:

• China February manufacturing hits 3-month high, but US tariff war clouds outlook
• China’s Feb second-hand home prices narrows for seventh straight month, report says

ECB minions’ rate cuts getting more likely in Eurozone as EU economy drags, may “stumble” into stimulus:

• Euro zone inflation ticks lower in boost to ECB rate cut bets
• ECB may fear stumbling into stimulus

Nasdaq plunges more than 2%; S&P, Dow also drop as fears over Trump’s tariff plans sink in

• Nvidia sinks, chips tumble amid China fears, Trump tariffs

Tuesday, 4 March 2025

• Signs and portents for the U.S. economy:

• Trade wars erupt as Trump hits Canada, Mexico and China with steep tariffs

• Goldman Sachs CEO: Trump wants to ‘level the playing field’ with tariffs, US recession has ‘small, but not zero’ chance
• Trump alerts American farmers: get ready for external tariffs April 2

China hits US agriculture, says won’t be bullied by fresh Trump tariffs

• Which U.S. agricultural products did China hit with tariffs?
• China to impose extra tariffs of 10%-15% on various US farm products

Oil down on OPEC+ output increase, tariffs start and US pause on Ukraine aid

Fed minions worry about tariffs and inflation they failed to fix after four years:

• Fed’s Williams: Tariffs are inflation risk, rate policy in good place

Bigger stimulus developing in China:

• China ramps up stimulus to guard economy from changes ‘unseen in a century’

Dow, S&P end lower by 1%, Nasdaq declines as Trump tariffs stoke trade war worries

Wednesday, 5 March 2025

• Signs and portents for the U.S. economy:

• Oil settles down more than 2% after US crude stocks build, OPEC+ hike, US tariffs

• Oil falls as OPEC+ plans to raise output, U.S. tariffs hammer sentiment

US factory orders rebound in January on commercial aircraft

Trump will delay some auto tariffs after Detroit Three push

BOJ minions thinking about what’s on their balance sheet and hiking Japan’s interest rates:

• BOJ has no immediate plan to sell ETF holdings, deputy governor says
• BOJ vows to keep raising rates despite Trump tariff risks

ECB minions see lack of growth developing in Eurozone, Germany to try to spend its way out of funk:

• Euro zone economy treads water again in February, PMI shows
• Exclusive: How the ECB dodged a payment disaster in 10 hours of tech meltdown
• German parties agree historic debt overhaul to revamp military and economy

• Spending U-turn puts Germany back in Europe’s driving seat

Nasdaq, S&P, and Dow closed out the day on top as Trump delays auto tariffs

• Wall Street gains as markets eye easing of trade tensions

Thursday, 6 March 2025

• Signs and portents for the U.S. economy:

• US trade deficit hits record high in January on imports surge

Fed minions don’t want to cut rates too soon, start noticing well-developed problems with U.S. economy:

• Fed’s Waller, leaning against March cut, sees easings later in year
• Fed’s Harker says warning signs emerging for US economy

Bigger trouble, stimulus developing in China:

• China’s imports tumble as demand skids, trade war heats up
• China’s January-February exports, imports weaker than expected
• More words than deeds from China on consumption keep deflation in play

ECB minions cut interest rates again to prop up Eurozone economy:

• ECB cuts rates for sixth time in face of economic upheaval
• ECB cuts rates again but risk of April pause growing

Nasdaq ends down 2%, S&P slides in tech- and tariff-led rout before U.S. jobs report

• Nasdaq-100 plunges; see which 10 names are struggling the most
• Wall Street sells off as tariff concerns mount, Nasdaq confirms correction

Friday, 7 March 2025

• Signs and portents for the U.S. economy:

• US Treasury’s Bessent says economy may slow in shift away from public spending

• Bidenomics Hangover Worsens: Subprime Auto Loan Delinquencies Hit Record High In January

Trump delays tariffs for goods under Mexico, Canada trade deal

Oil up, but off highs as Trump warns new Russia sanctions possible

• US estimates it will take $20 billion and years to refill oil reserve

Fed minions say they’re in no rush to cut rates again, are expected to cut rates again in June 2025:

• Fed expected to cut rates in June as jobs data raises potential red flags
• Fed Chair Powell signals possible tweaks to ‘dot plot’ rate-path forecasts

• Powell says tariffs could feed inflation, Fed must wait to determine the impact

Fed should be careful, deliberate with interest rate policy, Daly says

Fed’s Kugler says rate policy likely on hold for some time

Fed may need to stay patient on rates until summer, Bostic signals

Fed’s Bowman signals she may pay more attention to job market in policy debates

Fed’s Williams: Data points to stable inflation expectations

Bigger trouble, stimulus developing in China:

• China to boost food imports from Latin America, Europe as US trade war escalates

JapanGov minion says Japan doesn’t need to worry about deflation anymore:

• Japan ready to declare end to deflation, economy minister says
• Japan’s largest union group sees biggest wage hike demand in over 30 years

Not as bad trouble developing in Eurozone:

• Euro zone economy grew faster than initially thought in Q4

Stocks end higher as Powell soothes economic worries, but post sharp weekly loss

• Equal weight S&P 500 outperforms in 2025 as market-cap weighted index declines
• Nvidia loses $1T market cap since hitting record high earlier this year

The negative economic data prompted a major change in the expectations of future rate cuts in 2025. The CME Group’s FedWatch Tool still projects a quarter point rate cut when Fed meets on 18 June (2025-Q2), but the big change took place in the expectations for following months. The FedWatch tool now anticipates rate cuts at 12-week intervals through 2025, with quarter point rate cuts forecast for 17 September (2025-Q3) and 10 December (2025-Q4).

The Atlanta Fed’s GDPNow tool‘s projection of what real GDP growth will be in the 2025-Q1 plunged from last week’s +2.3% annualized growth rate to -1.5%. The change indicates the economy will shrink during 2025-Q1, driven by two negative contributions involving January 2025 economic data. The larger contribution is a decline in net exports, which dropped following Biden-Harris anti-free trade actions on semiconductors that went into effect at the beginning of the year. Meanwhile, a smaller contribution came from reduced personal consumption expenditures, although personal incomes and personal savings rose in January. This latter contribution may be tightly concentrated among federal government workers and contractors, including those at non-governmental organizations.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Wall Street bear about to pop a balloon that says ‘AI’ with a dart”.