Week in Review: February 14, 2025

February 18, 2025

Recap & Commentary

Markets ended the week higher as trade policy remained a focal point for investors, along with inflation, Fed Chair Jay Powell, and corporate earnings. The week began with President Trump announcing 25% tariffs on all steel and aluminum imports entering the US. While the move helped buoy the stock price of domestic producers, it also raised the specter of higher prices on a number of manufactured goods including autos which according to some estimates could see the cost of a  new car increase by ~4%, or $2,000. Later in the week, Trump announced he had instructed his Commerce Secretary nominee to study options for reciprocal tariffs on a country-by-country basis and report back by April 1. The move was greeted positively by Wall Street which had feared the new tariffs would be implemented immediately.

Fed Chair Jay Powell testified before Congress, where he largely reiterated prior comments that following 100 basis points (1%) of cuts in 4Q24 the Fed does not “need to be in a hurry” to further adjust monetary policy.  The week’s inflation data lent further credence to the idea that the Fed is unlikely to cut rates again in the near-term. By week’s end, markets were not expecting the Fed to cut rates again before its June meeting.

Through Friday, 77% of S&P 500 companies had reported fourth quarter earnings. Thus far, 76% have beaten their earnings estimate. According to industry group FactSet, earnings growth for the quarter is expected to be 16.9%, which if realized would be the highest year-over-year growth rate since 4Q21. On December 31, estimated growth for 4Q24 earnings was 11.8%.

Economic Commentary

Consumer inflation (CPI) showed signs of reaccelerating in January as both headline and core measures exceeded expectations while increasing from the prior month. Headline CPI increased 0.5% in January, its fastest monthly pace since August 2023.  Compared to a year ago, prices rose 3.0%, the fastest annual pace since June 2024. Core CPI, excluding food and energy prices, rose 0.4% for the month and 3.3% from a year ago. Egg prices, which have seemingly dominated recent inflation coverage, rose 15.2% during the month, and 53.0% from a year ago, reaching a new record of $4.95/dozen. The sharp increase has been driven by the most recent bird flu outbreak which has resulted in farmers killing 158M chickens, including 41M in December and January alone.

Like CPI, producer inflation (PPI) remained elevated in January, with headline and core PPI increasing 3.5% and 3.6%, respectively, from a year ago. The strong gains corroborated the increases in CPI and suggested that producer prices are unlikely to provide near-term relief for consumers.

After a strong finish to the year, consumers pulled back on spending in January as evidenced by a 0.9% decline in retail sales, the sharpest drop since March 2023. The pullback was attributed to unusually cold weather across much of the country in January. It may have also been due to consumers simply reigning in spending following the holidays.

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Of Note

According to real estate group CoreLogic, 73K homes were pulled from the market in December after failing to find a buyer, a 64% increase from a year ago. Whether would-be sellers are now waiting for spring in hopes of getting their original asking price, or would consider a reduced price, is unclear.

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Market Indices   (As of 02/14/2025)

• Consumer Inflation (CPI)
• Manufacturing PMI
• Services PMI
• Housing Starts
• Existing Home Sales
• Consumer Sentiment
• Initial Jobless Claims