In the recent week, the U.S. stock market witnessed a remarkable rebound, with all major indices recovering. This momentum was significantly influenced by Federal Reserve Chairman Jerome Powell's reiteration of a cautious stance towards interest rate cuts, alongside a decline in U.S. Treasury yields. Among the notable highlights, the Nasdaq Composite Index managed to surge past the notable 20,000 mark, a first since its previous encounter with this psychological level three weeks earlier.

In the short term, economic factors such as fluctuating tariffs are expected to remain a point of concern, leading to mixed capital flows in U.S. equity funds. Interestingly, the marginal effects of these influences appear to be diminishing, as many investors are opting to await the actual implications rather than act preemptively. The ongoing debate regarding the future course of the Federal Reserve’s monetary policy adds another layer of complexity to the market landscape.

A Cautious Tone from the Fed

Moreover, the employment landscape in the U.S. remains stable, with first-time jobless claims falling by 0.7 thousand to 213,000. This trend has been generally downward this year, correlating with record low layoff rates. While the number of layoffs remains minimal, the abundance of job opportunities for the unemployed has diminished compared to a year ago, indicating a more cautious stance among employers.

Given the current inflationary environment and job market dynamics, Chairman Powell expressed a careful outlook during a recent semi-annual monetary policy report hearing on Capitol Hill. He stated, "We are close to our inflation target, but we have yet to reach it." He added, "We want to maintain the current policy constraints."

In the medium to long term, U.S. Treasury bonds have fluctuated in response to rate expectations. The two-year Treasury yield fell by 1.9 basis points to 4.258%, while the benchmark ten-year yield dropped 0.8 basis points to 4.475%. Futures for federal fund rates indicate that the market anticipates around 40 basis points of room for rate cuts this year, suggesting that two potential cuts are not fully priced in yet.

Importantly, hawkish sentiments within the Federal Reserve are resurfacing. Dallas Fed President Lorie Logan reiterated her view that even if inflation rates edge closer to the Fed’s 2% target in the coming months, it does not necessarily imply a reduction in interest rates. "The question of how restrictive our current monetary policy is remains a critical one. So we need to be prudent," Logan stated, highlighting the uncertainty regarding whether inflation will materially cool in the near term.

Thomas Simons, Chief U.S. Economist at Jefferies, commented, "Powell has transitioned the Fed's rate cut stance to a 'no hurry' mode. The rise in longer-term yields is not solely driven by inflationary concerns among investors."

A report from TD Securities highlighted that the labor market remains resilient, supported by strong household balance sheets, implying steady growth in consumer spending by 2025. Despite the uncertainties stemming from tariff threats, the Fed appears inclined to proceed cautiously, as the appropriate neutral rate remains uncertain. Some officials have incorporated tariff impacts into their forecasts, yet the specific effects await further quantification.

Tech Stocks Lead the Charge

Despite the disturbances caused by tariff news and fluctuating economic indicators along with unexpectedly high CPI figures, the U.S. stock market showed resilience and rebounded last week. The S&P 500 index crossed the significant 6100 threshold, marking a new milestone.

Statistics from the Dow Jones show that most sectors saw gains, predominantly led by technology with a 3.8% increase, followed by the communication services sector, which rose by 2%. Other sectors such as materials, consumer goods, energy, and utilities also surpassed 1%. The AI sector maintained its robust performance, with NVIDIA's stock surging 32% over the week, buoyed by a positive sales guidance for the fiscal year 2026. Intel's shares also rose by 24%. U.S. Vice President Vance emphasized that the "strongest" AI systems need to be built within the United States. However, healthcare and financial sectors lagged, with only two sectors experiencing declines.

Investment flows indicated a second consecutive week of withdrawals from equity funds, marking the fifth instance out of the last six weeks. Rising inflationary pressures have significantly dampened risk appetite. Data from the London Stock Exchange Group (LSEG) provided to First Financial reveals a net outflow of $2.25 billion from U.S. equity funds in the past week.

J.P. Morgan remains bullish on the outlook for U.S. stocks. Despite the fluctuations surrounding DeepSeek and worries over tariffs, the firm’s positive outlook on risk assets, particularly in the U.S., remains intact. In the short term, the company anticipates continued volatility over tariff headlines and a potential bill passing in April, yet they are setting a year-end target of 6500 for the S&P 500 index, as stated by Fabio Bassi, the firm's head of cross-asset strategy, in a report to clients.

Charles Schwab commented in their market outlook that despite unexpectedly high inflation data and new tariff announcements, U.S. stocks managed to climb higher. The duration of the tariff implementation remains uncertain, leading to anxieties about whether it serves merely as a negotiating tactic and whether they will ultimately generate any inflationary impact. The market seems poised to neglect any potential consequences unless they manifest in economic data.

The firm suggests that as long as economic data and profit growth expectations remain stable, the ten-year Treasury yield will still be below the mid-January high of 4.80%, indicating a continued bullish trend for the stock market. As significant market-moving catalysts are absent ahead of earnings reports, such as NVIDIA’s on February 26 and the Personal Consumption Expenditures (PCE) data on February 28, markets currently reside in an overall risk-prone environment. However, should tariff shocks remain manageable and Treasury yields continue to ease, favorable conditions for equity markets could prevail.