Week in Review: February 7, 2025

February 10, 2025

Recap & Commentary

Markets ended the week down slightly as investors breathed a sigh of relief after proposed tariffs on Canadian and Mexican imports were suspended for at least thirty days.  In addition, investors were kept busy with corporate earnings and various economic data.

After declaring at the end of the prior week that the US would implement 25% tariffs on Mexican and Canadian imports, and additional 10% tariffs on Chinese imports, President Trump agreed at the last minute to suspend the tariffs on Canada and Mexico for 30 days after both countries made certain concessions. Markets greeted the news with cautious enthusiasm. However, by the end of the week tariffs were back in the news as President Trump indicated he plans to announce reciprocal tariffs on a number of unidentified countries this upcoming week. In the near term, market volatility will likely remain elevated until there is greater certainty regarding trade policy.

Through Friday, 62% of S&P 500 companies had reported 4Q24 earnings. Thus far, 77% have beaten their earnings estimate. According to industry group FactSet, earnings growth for the quarter is expected to be 16.4%.

Economic Commentary

Labor markets cooled some in January with nonfarm payrolls adding only 143K jobs, below the expected 169K, and down from December’s upwardly revised 307K. Unemployment fell 0.1% to 4.0%, its lowest level since May 2024. Average hourly earnings increased 4.1% from a year ago, 0.3% higher than expected, and unchanged from December’s pace. In a separate report, job openings fell ~500K in December to 7.6M, the second lowest level since January 2021. Weekly jobless claims rose 11K to 219K. The combination of modest job growth, relatively low and stable weekly jobless claims, and shrinking number of job openings suggests that employers are not currently shedding jobs in large numbers and therefore people with jobs are relatively safe, however, those without jobs are finding fewer new employment opportunities.

Data from industry group Institute for Supply Management (ISM) showed that the manufacturing and services sectors both expanded in January. For manufacturing, that marked the first growth in 27 months. Employment in both sectors was also positive though modest. Nonetheless it was the first time since May 2024 that manufacturing payrolls grew. New orders for both sectors were also positive with manufacturing orders accelerating to their highest level since May 2022, suggesting improving demand.

Consumer sentiment slipped in January, led by a deterioration in consumers’ current and future expectations. Most notable was the 1-year inflation expectation which jumped a full 1.0% to 4.3%, its highest level since November 2023.  The rise seemed to reflect growing concern about how President Trump’s proposed tariffs could lead to price increases, thereby inflaming inflation. Five-year expectations remained relatively unchanged, increasing 0.1% to 3.3%.

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Of Note

The U.S. Postal Service resumed accepting small packages from China valued at less than $800 which under current trade policy are exempt from customs duties or tariffs. The delivery of such packages was briefly suspended after President Trump levied new 10% tariffs on Chinese imports. A short while later, Trump allowed such shipments to continue without additional charges.

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Market Indices   (As of 02/07/2025)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Retail Sales
• Small Business Optimism
• Industrial Production
• Initial Jobless Claims