Weekly Market Report: February 21st, 2025
Equity markets delivered some volatility last week with both business and consumer sentiment data contributing to a cooling growth narrative overall. Equity markets saw the S&P 500 notch a new record high while also logging its worst session thus far in 2025. Growth and larger technology names lagged while value, emerging markets, and developed international markets were relative out-performers. Risk asset volatility translated to demand for high quality bonds, pressing interest rates slightly lower on the week leaving 10yr bond yields at 4.42%. Commodity markets and the USD (broad basket) were largely unchanged with the exception of the Yen/USD which saw the Yen strengthen over 2%.
Market Anecdotes
- Softening sentiment and cooling growth expectations factored into some equity market consolidation last week where we’re seeing soft data get back in sync with hard data overall.
- Market internals year to date continue to show signs of broadening and improvement in breadth with mega cap U.S. growth stocks lagging value and international.
- The peak of 4Q earnings reports was last week and the backdrop remained encouraging with healthy top and bottom-line growth alongside a broadening of improved fundamentals.
- Outperformance of European equities over the U.S. has triggered debate over the drivers and the
persistence of the relative performance outcomes and whether we’re seeing yet another of many head fakes courtesy of international developed markets. - Japan’s economy is experiencing a notable jump in growth (2.8% Q4 QoQ AR) and persistent price pressures stemming from a strong labor market and wage inflation not seen since the 1990’s. Hawkish and BoJ are two words rarely seen in the same sentence until very recently.
- The 114bps increase in 10yr bond yields from the mid-September initial FOMC rate cut to the January 10th pivot to a ‘wait and see’ approach has given back 35 bps while short rates have remained on ice.
- In the U.S., a “heads I win, tails you lose” narrative is currently underpinning some BCA strategists views where accelerating jobs/growth will lead to problematic higher interest rates while decelerating growth will lead to a decelerating labor market.
- Strategas noted the liquidity boost coming from the Treasury general account which, during debt ceiling impasses (2011, 2023), is drawn down to maintain operations. The TGA stands at $790b, down from $821b last year but the drawdown is expected to ramp up in the coming weeks
Economic Release Highlights
- February flash U.S. PMI declined 2.3 points from January on the composite to 50.4 due to a miss on Services (49.7 vs 53.0) and an in line reading on manufacturing (51.6 vs 51.3).
- Eurozone and UK flash PMIs (C,M,S) were largely unchanged at (50.2, 47.3, 50.7) and (50.5, 46.4, 51.1) respectively with improvements in manufacturing offset by declines in services.
- Housing Starts (1.366M vs 1.397M) and Permits (1.483M vs 1.470M) in January were generally in line with
expectations. - Existing Home Sales (4.08M vs 4.16M) in January were in line with forecasts, falling 4.9%MoM and up 4.8% YoY.
- The Housing Market Index declined in February from 47 to 42, missing the consensus estimate of 47 and coming in below the forecast range (45-48).
- The final UofM Consumer Sentiment reading was revised down from 67.8 to 64.7 and 1yr inflation expectation remained elevated at 4.3%.
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