Week in Review: February 21, 2025

February 24, 2025

Recap & Commentary

Markets ended the holiday-shortened week lower after suffering their largest one-day decline since mid-December on Friday. The selloff was the result of disappointing consumer and housing data, which came a day after Walmart issued a weaker-than-expected outlook for the upcoming year.

On Thursday, Walmart provided sales and earnings guidance for 2025 below analysts’ expectations. The company, often viewed as a bell weather for broader consumer spending, cited “uncertainties” related to consumer behavior along with global economic and geopolitical conditions.

Economic data released on Friday, raised fresh concerns about the strength of the consumer as well as the broader economy as consumer sentiment fell to its lowest level since November 2023. At the same time, consumers continue to expect higher inflation, resulting from potential tariffs. That was reflected by the 5-year inflation outlook which rose 0.3% from January, to 3.5%, the largest monthly increase since 2001 and highest level since 1995. Elevated inflation expectations could lead to lower consumer spending.

Adding further uncertainty to future inflationary pressures, President Trump said on Tuesday, that he is considering tariffs “in the neighborhood of 25%” on automobiles, semiconductors, and pharmaceuticals.

The release of the minutes from the Federal Reserve’s January meeting contained no real surprises. On the topic of inflation, “Participants generally pointed to upside risks to the inflation outlook. In particular, participants cited the possible effects of potential changes in trade and immigration policy, the potential for geopolitical developments to disrupt supply chains, or stronger-than-expected household spending.”

Economic Commentary

According to S&P Global, US economic activity barley remained above stall-speed in February, as a slight acceleration in manufacturing activity was offset by an unexpected contraction in services activity, which fell to a 25-month low. Underlying details showed new order growth fell sharply due to uncertainty surrounding government policies while input costs for both manufacturing and services jumped in response to tariff-related price hikes.

Housing activity slumped in January, impacted by unseasonably cold weather across large swaths of the country. Building activity, measured by housing starts, fell 9.8% and after increasing 16% in December. Permits, a sign of future building activity, were unchanged from December levels. Future building activity could be hampered by tariffs, particularly those that might be levied on Canadian lumber. Existing home sales slipped 4.9% to a three-month low. However, sales increased 2.0% from a year ago, the fourth consecutive monthly year-over-year increase. The median price rose 4.8% from a year ago to $396.9K

Consumer sentiment fell to a 15-month low by a sharp deterioration in consumers’ views of both current and future economic conditions. Concerns about tariffs and an attendant increase in inflation led to a steep decline in expectations for buying durable goods.

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Of Note

Germany’s conservative party won the country’s elections, two months after the collapse of the current government. However, no party won more than 30% of the vote meaning forming an effective governing coalition could be difficult.

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Market Indices   (As of 02/21/2025)

• Core PCE Inflation
• New Home Sales
• Pending Home Sales
• Durable Goods Orders
• Consumer Confidence
• Initial Jobless Claims