S&P 500 falls into correction

The S&P 500 fell into correction territory on Thursday – losing more than 10% of its value from its peak on 19 February. Gold hit a record high. Investors are worried about the Trump tariffs, particularly the impact on growth and inflation. US market sell-off - what is a market correction?

US President Donald Trump’s tariffs and investor doubts about a potential ceasefire between Russia and Ukraine weighed on risky assets. There is a great deal of uncertainty about what the tariff schedule will look like as policies change rapidly. The impact on corporate earnings remains unknown. There were also problems with the US brokered 30-day ceasefire in Ukraine after Russian President Vladimir Putin made a series of demands for concessions ahead of the agreement.

There were some hopes that the US federal government would avoid a shutdown at midnight on Friday. Senate Democrats are blocking the House of Representative’s Republican short-term funding bill but Senate Minority Leader Chuck Schumer reversed course and said he would support a Republican funding bill to keep it open.

In UK equities, the FTSE 100 was down 1.1% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading -1.5%.

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Geopolitics

Donald Trump imposed a 25% tariff on all steel and aluminium imports to the US. There were no exemptions, with the tariffs designed to protect US manufacturing and bolster jobs by making foreign-made products less attractive. The European Union (EU) announced it will impose retaliatory tariffs on the US affecting €26bn of US goods from 1 April. The bloc's tariffs will not only impact US steel and aluminium products, but also textiles, home appliances and agricultural goods. Canada announced 25% retaliatory tariffs on US goods worth C$29.8bn that came into effect on Thursday morning. Mr Trump said he would impose 50% tariffs on Canadian goods, but withdrew that threat hours later, maintaining the tariff increase at 25%.

UK Prime Minister Keir Starmer has said he was "disappointed" but the UK will take a "pragmatic approach" and "all options are on the table". In response, Mr Trump said that "of course" he would respond to the countermeasures, repeating his warning to reveal "reciprocal" tariffs next month on countries around the world. "Whatever they charge us with, we're charging them," he said.

Mr Trump then threatened to raise a 200% tariff on any alcohol imports. The threat is a response to the EU's plans for a 50% tax on imports of US-produced whiskey as part of its retaliation to Trump's tariffs on all steel and aluminium imports to the US. The US president called for the immediate removal of the EU's "nasty" tariff on US whiskey, calling the bloc "hostile and abusive" and "formed for the sole purpose of taking advantage of the United States".

Tariffs on goods being imported into the US could tip Europe's largest economy into another recession, according to Joachim Nagel, the head of the Deutsche Bundesbank. The central bank president said the country "could expect a recession for this year" too after it contracted for two years in a row.

The UK has halved its carbon dioxide emissions since 1990. This represents the best performance of any of the major economies and was achieved by ending electricity generation from coal, adding substantial wind and solar capacity, and running down high-energy-using industries such as steel, ceramics, petrochemicals and oil refining through high energy prices and carbon taxes. Now comes the next stage. Getting to net zero – the UK approach

Economics

The UK economy contracted in January in a blow to Rachel Reeves ahead of her Spring Statement on the 26 March. The economy shrank by 0.1% month-n-month in January, below the 0.1% expansion predicted by economists and December's 0.4%, with a slowdown in manufacturing one of the main reasons for the dip. Is the UK Spring Statement a Budget?

The UK consumer is reining in spending. Retail sales growth slowed again in February as poor fashion sales weighed down non-food spend, according to data from the British Retail Consortium (BRC) and KPMG. The monthly BRC-KPMG Retail Sales Monitor report showed that UK retail sales rose at a year-on-year rate of 1.1% last month, compared with a 2.6% gain in January and the 3.2% growth registered in December. "While sales growth across non-food categories was generally muted, it was propped up by online purchases, particularly in computing and electronics. Jewellery, watches and fragrance sold well thanks to Valentine’s Day, reversing declines seen last year, and furniture also returned to growth," said Helen Dickinson, chief executive of the BRC.

US inflation slowed more than expected in February, according to preliminary estimates, with consumer prices rising just 0.2% month-on-month, although cost pressures are likely to pick up in the months ahead as the impact of trade tariffs begins to set in. In year-on-year terms, the Labor Department reported that the CPI was up 2.8% in February, with annual inflation slowing from the 3.0% reported the month before, shy of the 2.9% expected by the market.

Companies

Financial services group Legal & General announced plans to buy back £500m of shares this year after a strong financial performance in 2024. The return is part of management’s plans to return more than £5bn to shareholders within three years, which represents about 40% of its market cap. The share repurchase follows a £200m buyback in 2024 and an already announced £1bn buyback which will commence after the sale of its US protection business.

Halma said it made "good progress" in the second half of its financial year, putting the company on track for its 22nd consecutive year of record profit. In a short trading update ahead of full results released in June, the safety products group said organic revenue growth was supported by strong order intake, and margins are now expected to be "modestly above 21%", up from previous guidance of "around 21%".

Shares in Zara owner Inditex the world’s biggest fashion retailer said sales growth had started to slow. In the fourth quarter, which includes the vital Christmas season, sales grew 8.4% to €11.2bn while net profit rose nearly 14% to €1.4bn. However, sales rose just 4% in the first five weeks of the current financial year, significantly below its quarterly growth rates of 7% or more in 2024. Uncertainty about the impact of US President Donald Trump’s tariff threats also weighed on the stock — the US is Inditex’s second biggest market, but it does not produce any of its clothes there.

Shares in Persimmon rose after the housebuilder delivered a small beat to City expectations in its 2024 results. The group completed 10,664 homes in the year, up 7% on the prior year, with average selling prices 5% ahead at £268.500. The company declared a 60p dividend, in line with the prior year, as net cash ended the year at £258.6m. Management raised its annual building target for 2025.

Infrastructure construction specialist Balfour Beatty posted an 11% rise in underlying annual earnings and said it would buy back £125m in shares this year. The solid figures were in line with the company’s December trading update. Management expects to increase its dividends and share buybacks for 2025. Its focus is now on the growth markets of UK energy, transport and defence, and US buildings. Long-standing chief executive Leo Quinn will step down in September, succeeded by Philip Hoare, currently chief operating officer of AtkinsRéalis, an engineering and nuclear services business based in Montreal.

DFS Furniture shares surged as it raised its full-year profit outlook following an improved profit performance in the first half. The retailer said trading through the first 10 weeks of the second half has remained strong, with order intake increasing from the 10% growth achieved in the first half, with its year-to-date order intake now up 11%.

Italian utility Enel presented a strong set of annual results and management said it may be able to launch a share buyback this year after net debt following a disposal programme. The core profit from Enel's integrated business, which combines the performance of power generation and energy sales activity, rose 14% last year.