Weekly Market Report: February 28th, 2025
Last week markets digested the last heavy week of Q1 earnings reports, a closely watched economic calendar, and a remarkable stream of trade and foreign policy developments. Risk appetite was cautious with a strong rally in U.S. Treasury bonds and global equity markets trading flat to down on the week. U.S. stocks were weighed down by lagging tech and shadow tech names, translating to a 1% loss on the headline S&P 500 while the equal weight S&P 500 managed a small gain. Developed international (+0.05%) was pretty flat but emerging markets (-3.8%) traded broadly lower. Interest rates fell sharply with yields falling 15 to 23 basis points across the curve. The commodity complex traded lower across the board while the USD caught a bid as risk aversion trended last week.
Market Anecdotes
- Positive short-term stock/bond yield correlations and interest rate call/put skew are suggesting markets at this point are more concerned with tariffs and growth than fiscal imbalances. However, a recession in the U.S. remains a non-consensus call.
- A rally on the long end of the yield curve pushed the 3mo/10yr slope back into inversion last week as markets traded on a slowing growth narrative with an implicit message to the Fed that some easing might be warranted but emerging tariff price pressures may complicate things.
- Fourth quarter earnings season is now largely complete. Highlights include very firm 17.8% earnings growth (led by financials), historically average beat rates and margins, more than usual downward guidance, and the runaway hot topic was tariff policies.
- The U.S. tariff reprieve on Canada and Mexico following concessions earlier this month were back in the headlines last week with POTUS indicating 25% on the former and 10% on China may be coming this week. Markets and businesses remain unclear on specific details at this time.
- U.S. debt/GDP, up from 76% in 2017 to 100% today, are projected to increase to 126% by 2034, highlighting a serious problem in need of serious solutions which the proposed budget seems to fall short, even with aggressive assumptions. Bond markets seem fine but are watching.
- The HOR budget resolution bill is projected to add $2.8t to the deficit by 2034 with Senate modifications (higher tax cuts, reduced spending cuts) taking that figure to -$3.5t.
- A remarkable shift in U.S. foreign policy took shape last week with Ukraine walking away from a U.S. negotiated surrender of territory, a rare earth minerals deal, and emerging mobilization of European nations.
- BCA suggested recent leadership in European equities is driven primarily by near term economic surprises and cheap valuations rather than earnings or growth fundamentals but foreign policy developments and the debt that comes along with them may also be a factor.
Economic Release Highlights
- January Headline and core PCE grew 0.3% MoM in January with YoY readings of 2.5% and 2.6% respectively, both generally in line with estimates.
- Personal Income grew more than expected in January (0.9% vs 0.3%), following 0.4% growth in December and MoM PCE contracted by 0.2%, more than the 0.2% growth expected.
- Consumer Confidence fell from 104.1 to 98.3 in February, below the spot consensus 103 and the forecast range of 100 to 104.5.
- Durable Goods Orders jumped 3.1% in January, well above consensus of 1.9% and toward the high end of the range. Core Capital Goods grew 0.8%,well ahead of the 0.5% spot consensus.
- New Home Sales in January of 657k was in line with the consensus range of 630k to 705k. Pending Home Sales Index fell 4.6%, below the forecast of -1.2% and consensus range of -3.3% to 2.4%.
- The Case-Shiller Home Price Index came in at forecast, up 0.5% MoM in December and 4.5% YoY
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