• Disappointing private sector and consumer sentiment surveys that sparked a selloff on Friday have carried into this week. Market watchers have differing opinions about the effects of tariffs and other parts of Trump’s agenda, which could prove inflationary but might also have the potential to slow growth.

Stocks continued to slide on Tuesday as markets digest new data about declining consumer sentiment and investors debate the potential impacts of President Donald Trump’s economic agenda. The recent selloff sets the stage for a blockbuster close to the week, starting with Nvidia’s highly anticipated earnings release after the bell on Wednesday.

The S&P 500 had dropped slightly as of Tuesday afternoon as the tech-heavy Nasdaq fell by more than 1%, extending declines of roughly 2.5% and 4.5% over the past five days, respectively. The ability of Jensen Huang’s chip behemoth Nvidia to exceed lofty expectations will likely determine the short-term fate of the AI trade, while important macroeconomic reports follow during the next two days.

Updated GDP growth numbers come in on Thursday, while Friday will feature closely watched data on consumer spending and the latest reading of the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation metric.

The market pullback began Feb. 21 following the release of several disappointing reports. S&P Global’s purchasing managers’ index, or PMI, surveys indicated weakening private business activity, noted Bill Adams, chief economist at Comerica Bank.

“The services PMI fell into contractionary territory as federal spending cuts worried institutions reliant on public funding,” Adams wrote in a note Monday. “Manufacturing rose, but the report warned that some of the increase was likely due to manufacturers front-running tariffs.”

Meanwhile, Adams said concerns about tariffs and mass layoffs of federal employees driven by Elon Musk’s Department of Government Efficiency have also likely weighed on consumer confidence. The University of Michigan’s Index of Consumer Sentiment came in with its weakest reading since November 2023 on Feb. 21. Then, on Tuesday, think tank the Conference Board’s Consumer Confidence Index dropped to its lowest level since August 2021.

Stephanie Guichard, the Conference Board’s senior economist, said expectations of both future income and employment prospects weakened.

“Consumers who fear the impact of higher tariffs, spending cuts, and deportations are getting worried and are likely to be more cautious toward discretionary spending near-term,” Adams wrote in a note reacting to the survey’s results Tuesday.

Will Trump’s agenda cause inflation?

Speaking of tariffs, Trump said on Monday afternoon a blanket 25% tax on goods from Canada and Mexico would be implemented next week.

Those measures had been paused when the U.S. reached agreements with both North American trading partners on border security earlier this month. Recently, UBS Global Wealth Management chief economist Paul Donovan called Trump more of a “pushover” than a true “protectionist” when it comes to taxing imports. On Tuesday, Donovan said markets still do not believe Trump.

“Taxing everyday essentials like propane gas and avocado on toast would be very visible, very quickly to U.S. consumers,” he wrote. “Polls suggest only 32% of U.S. voters approve of Trump’s management of inflation.”

Wall Street awaits the Bureau of Labor Statistics’ release of January’s PCE data after its two other main inflation readings, including the consumer price index, came in slightly hotter than expected last week. The Fed’s board minutes signal officials see inflation moving gradually toward the central bank’s 2% target, but they noted “potential changes in trade and immigration policy” (i.e., tariffs and mass deportations) could stall that progress.

Some traders, however, think the Fed has it backwards. Jay Hatfield, CEO of Infrastructure Capital Advisors, which manages ETFs and several hedge funds, told Fortune most market participants misread the new administration’s policies as inflationary. Tariffs, which he said will ultimately function like a sales tax, and firing hundreds of thousands of government workers should prove deflationary, he noted.

He said he believes, therefore, that the Fed’s decision to stand pat and not continue cutting interest rates is dangerous. Very strong tech investment and a recent retreat in the yield on the 10-year Treasury, the benchmark for borrowing costs throughout the economy, he said, might bail out the Fed until the central bank realizes it desperately needs to slash the Federal funds rate.

“We are risking a recession as we speak,” he added.