Treasuries rally while tech tumbles

Last week in markets

The S&P 500 slipped 0.4% last week as a sharp rotation out of technology and financials and into defensive sectors such as utilities. Concerns about AI-related disruption moved to the forefront, prompting investors to reassess positioning in high-growth names.

In rates, the tone was clear: safety first. Despite a higher-than-expected Producer Price Index reading, Treasury yields declined as markets prioritized protection against geopolitical tensions and signs of cooling growth. The 10-year yield fell to a four-month low of 3.97%, signaling that investors are increasingly focused on downside economic risks rather than persistent inflation.

More tariff uncertainty

Markets opened last Monday still digesting Friday’s 6-3 Supreme Court ruling striking down tariffs. The broader takeaway was renewed uncertainty. What level of tariffs could be reimposed under alternative statutes, and how quickly? Will previously collected tariff revenue be refunded?

The S&P 500 declined roughly 1% Monday amid a mix of technology-sector volatility and trade concerns.

In a Monday speech, Federal Reserve Governor Christopher Waller described the labor market as “signal or noise,” reinforcing that the FOMC held rates steady in January following three 25 bp cuts since September. He suggested policymakers should look through tariff-related inflation effects.

The macro backdrop remains slow but stable. The Bureau of Economic Analysis’ advance estimate showed Q4 2025 real GDP rising 1.4% on a seasonally adjusted basis. Inflation ran somewhat firmer, with PCE prices up 2.9% and core PCE up 2.7% in the fourth quarter.

Consumer steady, yields drift lower

The Conference Board’s Consumer Confidence Index rose to 91.2 in February from 89.0 in January. The Present Situation Index slipped to 120.0, while the Expectations Index climbed to 72.0. That level still signals caution rather than optimism.

Labor market data remained stable. Initial jobless claims totaled 212,000 for the week ending Feb. 21, up 4,000 from the prior week, with the insured unemployment rate holding at 1.2%.

Against this backdrop, bonds extended their rally. The Treasury curve bull steepened, with the 10-year yield falling to 3.97% Friday from 4.03% Monday. The 2-year yield ended the week at 3.38%.

The week ahead

This week markets expect volatility following U.S.-Israeli strikes on Iran. Investors are bracing for an oil price spike that some have suggested will reach $100 per barrel due to potential supply disruptions in the Strait of Hormuz. There could also be a rotation out of risk assets like U.S. stock and into safe-haven assets like gold and USD.

On a data front, this week will test the durability of the soft-landing narrative as markets weigh labor data alongside evolving trade policy. The focus begins with the ISM Manufacturing PMI on Monday, followed by the Services PMI on Wednesday. The primary release is Friday’s February Employment Situation report.

Following Governor Waller’s recent remarks, investors may view this jobs report as a key input for the FOMC’s near-term policy path.

Parallel to these data releases, the market will be closely monitoring the secondary effects of the recent Supreme Court ruling on tariffs. Beyond the immediate legal decision, the focus shifts to the operational fallout. Specifically, the speed at which import costs adjust, the mechanics of potential refund distributions, and whether the administration pivots to alternative authorities, such as Section 232 or 301.

The answers will shape whether trade uncertainty remains a persistent headwind for inflation expectations and growth projections.