Nick Rummell

MANHATTAN (CN) — Extremely volatile trading early in the week hinted at another stormy week on Wall Street, and while investors were able to steady the ship the markets again turned downward Friday.

On Monday, investors were shaken by the rollout of Chinese artificial intelligence company DeepSeek, which is challenging the reign of Wall Street darling Nvidia. As a result, the tech-heavy Nasdaq finished the day on Monday down about 600 points.

A series of economic reports that met expectations helped Wall Street tame volatility midweek. However, after the Trump administration on Friday said 25% tariffs against Canada and Mexico would begin on Saturday, as well as an additional 10% tariffs on goods from China, markets again took a dive.

By the closing bell Friday, the Nasdaq finished down 327 points for the week, while the Dow Jones Industrial Average gained 120 points for the week and the S&P 500 decreased by 61 points.

On Friday, the U.S. Bureau of Economic Analysis found consumer spending and inflation have remained steady, as the personal consumer expenditures price index increased by 0.3% last month. Compared with a year ago, the PCE index increased 2.6%, while core inflation gained 2.8%, in line with forecasts.

Investors received anticipated news from the Federal Reserve on Wednesday, as the central bank voted unanimously to hold interest rates steady at 4.25% to 4.5%. The corresponding statement removed references to the goal to reduce inflation to 2% annualized and merely stated that “inflation remains somewhat elevated.”

The Fed’s decision was largely non-news for investors and indicates it is taking a “wait and see” approach to interest rates for the time being. During the press conference after the announcement Fed Chair Jerome Powell said that “we do not need to be in a hurry to adjust our policy stance.”

Robust consumer spending, solid income growth for most households, and an overall elevated economic mood “makes it more difficult for the Fed to cut rates without reigniting broad inflation pressures,” said Jeffrey Roach, chief economist at LPL Financial.

On Thursday, the BEA released its advanced estimate for gross domestic product for the end of 2024, which showed in the fourth quarter the U.S. economy increased by 2.3% annualized. That follows the upwardly revised 3.1% expansion for the third quarter of last year.

For the entirety of 2024, the U.S. economy rose by 2.5%, which exceeded nearly all major economists’ predictions, indicating the United States was able to stick its soft landing and beat out most other developed countries.

Once again, tariffs remain the sticking point for economists. “The biggest risk to our 2025 forecast is an immediate imposition of across-the-board tariffs on key trading partners,” economist Bernard Yaros at Oxford Economics wrote in an investor’s note.

Yaros, who currently predicts U.S. GDP should grow by 2.6% this year, noted that a 25% tariff on Canada and Mexico, as well as additional tariffs on China, would reduce 2025 GDP by 1.2%.

Consumer confidence also seems to be on the wane, as reflected in the Conference Board’s monthly index, which declined 5.4 points this month. Even more distressing, the board’s “present situation” index dropped nearly 10 points.

“Consumer confidence has been moving sideways in a relatively stable, narrow range since 2022,” Dana Peterson, chief economist at the board, said in a statement, noting this is the second straight month the main index has weakened and that views about the current labor market fell for the first time since September.

“Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row,” Peterson continued. “The return of pessimism about future employment prospects seen in December was confirmed in January.”