Weekly Market Update: February 10, 2025
The Federal Reserve’s progress on the inflation front has stalled in recent months. The Personal Consumption Expenditures (PCE) Price Index, the gauge of inflation most closely watched by the Fed, came in as expected in December, confirming a re-acceleration in the pace of price growth during the final month of 2024. Specifically, the PCE and core PCE, which excludes the food and energy components, rose 0.3% and 0.2%, respectively, with the headline figure up from 0.1% in November. On a 12-month basis, the PCE and core PCE increased 2.6% and 2.8%, respectively, with the rate of growth still running above the Fed’s target level of 2.0%.
The central bank is not in a rush to cut interest rates again. There are a number of reasons for this less-dovish monetary policy stance of late, including the recent lack of progress on inflation; the strong economy, which advanced by an estimated annualized rate of 2.3% in the fourth quarter; the still-tight labor market; and the threat of tariffs from the Trump Administration.
On February 1st, President Trump announced a round of tariffs on goods coming from Mexico, Canada, and China. However, shortly thereafter the Administration delayed the implementation of tariffs on our two North American neighbors by one month, as negotiations on revised trade and immigration policies continue. The news of these tariffs spooked investors, with Wall Street fearing that such actions may put additional upward pressure on the prices of certain goods.
Meanwhile, fourth-quarter earnings season is proving to be a success for Corporate America. With nearly half of the S&P 500 companies having reported results as of press time, the vast majority have exceeded heightened expectations. The consensus profit growth rate is estimated to average around 13%, which would mark the highest year over-year earnings growth rate since the fourth quarter of 2021. With some near-term uncertainty about the direction of both fiscal and monetary policy pressuring the equity market, the strong earnings growth momentum has provided needed support for stocks.
Conclusion: Volatility in the stock market picked up as the calendar turned to February. In this environment, we think investors would be prudent to maintain a diverse portfolio of stable, large-cap equities.
Source: ValueLine.com
