Market Update: February 10, 2025
Economic data for the week included strength in broad manufacturing measures, while services decelerated but remained strong. Other releases were mixed, with construction spending up, while consumer sentiment declined. The January employment situation report showed slower job growth but upward revisions for prior months, while the unemployment rate fell.
Equities were mixed globally, with declines in the U.S. offset by gains overseas, as tariff news turned out more benign than feared. Bonds saw gains along with falling long-term interest rates. Commodities were mixed, with higher prices for metals and lower for crude oil.
U.S. stocks started down Monday morning with the imposition of 25% tariffs on Canada and Mexico (10% on Canadian energy and China). However, markets reversed a bit when tentative agreements (with conditions largely symbolic) were made with both countries to delay tariffs by a month or more. It’s assumed that these extensions may continue until the review of the USMCA trade agreement in 2026. The Chinese tariffs of 10% were kept, although far below the 60% advertised during the election campaign, with retaliation from China far less dramatic than feared. Now, focus has turned to potential tariffs on European goods, which are assumed to be focused on the auto industry, among a few critical goods there and elsewhere. Some economists have been reticent about assigning odds of dramatic tariffs happening, but the odds of at least some degree of broader tariff increase have risen.
Sector results were mixed, with gains of over a percent in consumer staples and energy, followed by technology; these were offset by sharper declines of several percent in consumer discretionary (largely Tesla and Nike) and communications (Alphabet). Real estate gained over a percent, along with a fall in interest rates.
Earnings results for Q4 continue to plod along, with nearly two-thirds of the S&P 500 companies having now reported. Over three-quarters have reported a positive earnings surprise, and over 60% on the revenue side. The updated blended year-over-year earnings growth rate has ticked up to an impressive 16.4%, which would remain the strongest in three years. By sector, gains have been strongest in financials, communications, and consumer discretionary; on the other end, energy and materials have lagged with challenged commodities prices over the earnings period. Interestingly, earnings growth has been strongest for firms with over half of revenues derived internationally. Tariffs have been mentioned by at least half of companies in earnings calls so far, although not always in the context of forward guidance.
Foreign stocks gained last week, counter to U.S. markets. U.K. equities fared positively, as the Bank of England cut the policy rate by -0.25% to 4.50%, the third cut since last summer, upon expectations for slower (sub-1%) economic growth expected this year. Their votes hardly ever seem unanimous, with a few members wanting a half-percent cut. European inflation ticked up a bit, to around 2.5%, although economic growth there also keeps the ECB in more of a dovish mindset than not. Emerging markets also fared positively, with gains in China and Mexico. In China, a shortened Lunar New Year trading week was highlighted by stronger consumer spending, and perhaps some relief of U.S. tariffs not being more punitive, with Mexican stocks faring well for the same reason—the tariff postponement.
Bonds experienced a positive week, as the U.S. Treasury yield curve flattened, with higher short-term rates offset by lower long-term rates. The administration, via comments from U.S. Treasury Secretary Bessent, shared its goals of seeing lower 10-year yields as a way of easing policy (as opposed to pressuring the Fed to lower short-term policy rates), despite higher Treasury issuance. U.S. Treasuries and investment-grade corporates fared similarly, outperforming the flattish results of floating rate and high yield. Foreign bonds performed positively along with a weaker U.S. dollar.
Commodities generally rose, led by industrial metals, precious metals, and agriculture, while energy prices pulled back. Crude oil fell over -2% last week to $71/barrel, as Treasury Secretary Bessent also shared the administration’s policy objective of bringing oil prices down further (via additional drilling). On the other hand, natural gas spot prices rose nearly 9%, in reaction to continued cold weather across most of the nation, at a time of year when inventories traditionally begin to draw down as winter nears an end.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.