Last week was dominated by selling pressure across major U.S. indexes. Markets continued the adjustment process that began weeks ago, this time driven by a combination of factors: an escalating trade war with China and Canada, signs of slowing consumer activity, and a cautious tone from the Federal Reserve.

The result was a week of broad losses, particularly in technology and consumer discretionary, while sectors like defense and healthcare showed greater resilience.

General Trends

Sustained Decline Across Major Indexes

The S&P 500 accumulated significant losses during the week, deepening the correction that began from its all-time highs earlier in the year. The Nasdaq retreated more sharply, dragged primarily by large-cap technology names. The Dow Jones showed relatively more stable behavior, though it also closed the week in negative territory.

Technology Under Pressure

Large-cap technology companies continued their adjustment. Names tied to artificial intelligence and semiconductors posted notable declines, affected both by the higher-for-longer rate environment and new export restrictions to China announced as part of the ongoing trade conflict.

Optimism around artificial intelligence remains, but investors are becoming more selective about which companies can actually translate that potential into real earnings.

Domestic Consumption: Cooling Signals

Consumer confidence data released during the week showed a larger-than-expected deterioration. The impact of tariffs on imported goods prices is beginning to show up in household spending, adding pressure to the economic growth outlook.

Factors Behind the Movement

1. Tariff Escalation with China and Canada

The Trump administration announced new tariffs on Canadian steel and aluminum imports and confirmed that tariffs on Chinese goods will remain in place. Both countries responded quickly: China announced restrictions on exports of critical minerals used in semiconductors, while Canada retaliated with measures targeting U.S. consumer goods.

This trade escalation reignited fears of a price war that could push inflation higher, just as the Fed is trying to maintain its cautious stance.

2. Federal Spending Cuts and Slowdown Signals

The government announced reductions in federal spending as part of budget efficiency initiatives. Markets interpreted these measures with ambiguity: on one hand, they reduce the deficit; on the other, they could contract domestic demand and affect sectors that depend on government contracts.

3. The Fed Holds Its Ground: No Rush to Cut Rates

In statements throughout the week, several Federal Reserve members reiterated that they see no urgency to cut interest rates. With inflation still above the 2% target and the labor market showing resilience, the Fed prefers to wait for more data before acting.

Futures markets adjusted their expectations downward for a near-term cut, adding additional pressure on risk assets.

Sector Dynamics

Technology

The sharpest correction of the week. Semiconductor companies and digital platforms with exposure to China were the most affected.

Consumer Discretionary

The deterioration in consumer confidence weighed on retailers and entertainment companies.

Defense and Aerospace

Investment flows continued into this sector amid rising geopolitical tensions in Europe and the Pacific.

Energy

Moderate performance. Oil prices remained elevated, but concerns about a potential economic slowdown limited the sector's gains.

Healthcare

Positive defensive performance. Pharmaceuticals and biotech benefited from rotation toward less cyclical sectors.

The Market's Underlying Message

Markets are processing a more complex reality: the rate hike cycle is over, but that doesn't mean the path to lower rates will be immediate or linear. The combination of tariffs pushing inflation higher, a more cautious consumer, and a Fed in no hurry to act creates an environment of uncertainty that favors caution.

Investors are prioritizing:

• Companies with geographically diversified revenues, less exposed to the trade war.

• Sectors with relatively inelastic demand: healthcare, utilities, defense.

• Quality over growth: solid balance sheets, positive cash flow, manageable debt.

What Could Come Next

The evolution of trade negotiations. Any sign of de-escalation between the U.S., China, and Canada could trigger a quick rebound. Further escalation, on the other hand, would keep selling pressure in place.

Upcoming inflation data. If CPI shows a slowdown, it could shift market tone. If it surprises to the upside, it would reinforce the "higher for longer" scenario.

Signals from the Federal Reserve. The FOMC meeting scheduled for the coming weeks will be one of the most closely watched events of the month. The tone after the decision matters as much as the decision itself.

What We Take Away

The market correction is not a sign of collapse, but of recalibration. Markets are adjusting their expectations to a reality where growth remains positive, but slower, and where monetary policy is not going to rescue investors as quickly as many anticipated just a few months ago.

In this context, discipline, diversification, and a long-term perspective remain the most powerful tools for navigating volatility.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Information has been obtained from third party sources we consider reliable, but we do not guarantee the facts cited are accurate or complete. This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. We may execute transactions in securities that may not be consistent with the report's conclusions. Investors should consult their financial advisor on the strategy best for them. Past performance is no guarantee of future results.

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Sources: Bloomberg, Reuters Markets, CNBC, U.S. Bureau of Labor Statistics, CME FedWatch Tool