Market Update: February 18, 2025
Economic data was highlighted by consumer price inflation that came in hotter than expected, as did producer price inflation. Positive results were seen in industrial production, while retail sales fell back for the month, with perhaps weather and turn of the year seasonal effects skewing several of these measures.
Equities saw gains globally, as markets celebrated what appeared to be a less dramatic and broad tariff policy. Bonds were up slightly although yields were little changed, with foreign bonds helped by a weaker dollar. Commodities were up across the board.
U.S. stocks saw gains overall, although the week saw its share of uncertainty, mostly on the tariff front. There was a bit of a hiccup mid-week, after the especially hot CPI inflation report, which continues to push out the possibility of further Federal Reserve rate cuts in the near term. Markets turned upward with rising odds of a Ukraine-Russia peace deal, which was reportedly being discussed in Munich. As noted earlier, announcements of tariffs on steel/aluminum and ‘reciprocal’ tariffs on all countries were seen as less severe than feared, as recent tariff comments have not been reacted to as strongly as they once might have been, and the decision to not introduce full global tariffs provided some relief. Growth stocks broadly outperformed value, and large cap outgained small. By sector, technology gained nearly 4% for the week, followed by the mix of communications, materials, energy, and consumer staples. Healthcare lagged with a decline of over a percent. Real estate saw a small gain.
Fed Chair Powell’s prepared testimony to the Senate Banking Committee last week featured no real surprises. He noted that the FOMC did “not need to be in a hurry to adjust our policy stance,” with the policy rate “significantly less restrictive than it had been.” Also mentioned was that long-term inflation expectations remained well anchored, and that labor wasn’t a source of significant inflation at present. Perhaps importantly he noted that the neutral rate was “meaningfully higher” than its very low level pre-pandemic, although it’s “very hard to be precise about it.” In response to tariff impacts, he reminded that the FOMC ended up cutting rates in 2019, after supposedly inflationary tariffs were implemented the last time.
Foreign stocks fared generally better than domestic, with help from a roughly one percent drop in the U.S. dollar for the week. Europe led the way, up over 3% in U.S. terms, although the U.K. and emerging markets also saw decent gains. European equities were led by stronger earnings reports in addition to potential diplomatic signs of an end to the Ukraine-Russia conflict, which has weighed on sentiment to a large extent there for several years. In EM, Chinese stocks rose over 7%, followed by Mexico and South Korea, with some apparent relief that the U.S. administration’s early tariff options weren’t more damaging.
Bonds saw minor gains, despite little change in the yield curve, as credit spreads tightened a bit. High yield corporates outperformed investment grade debt slightly, while foreign bonds benefited from a weaker dollar.
Commodities saw gains overall, along with the weaker dollar. Agricultural prices rose by several percent, led by wheat and sugar. Crude oil prices were down a fraction of a percent last week to $71/barrel, while natural gas prices spiked by over 12% along with cold weather heating needs around the country (this offset some rumors about an early-stage Ukraine-Russia peace deal, that could lower gas costs in Europe significantly). Not often in the spotlight, ‘soft’ commodities like coffee and cocoa have seen upward price pressures over the last three months, due to a weather mix in key growing regions of not enough rain in Brazil and too much in West Africa.
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.