Weekly Market Update: February 24, 2025

Inflation remains sticky. This was evident in the latest round of price data that showed notable increases at both the producer (wholesale) and consumer levels. On a 12-month basis, the Producer and Consumer Price Indexes increased 3.5% and 3.0%, respectively, in January. The core readings, which exclude the more-volatile food and energy components, also were stronger than expected and running well above the Federal Reserve’s target rate of 2.0%. 

Then there is the debate of whether potential tariffs from the Trump Administration will put further upward pressure on prices. President Trump announced a series of reciprocal tariffs against several international trading partners that are set to take place on April 1st. This followed the announcement of tariffs on goods from China, Canada, and Mexico on February 1st, though the tariffs on our North American neighbors were delayed a month while those nations try to negotiate new trade and immigration deals. These fiscal policies have to be a concern for the Fed, as it attempts to rein in inflation. Given this backdrop, the central bank is now unlikely to cut interest rates again before the second half of this year, if at all. 

There are concerns that the re-acceleration in the price for goods and services is starting to take a toll on the consumer. The Conference Board’s Consumer Confidence Index declined by 5.4 points, to 104.1, in January. That report also showed consumers were less optimistic about future business conditions and, to a lesser extent, income. Likewise, the University of Michigan’s February Consumer Sentiment Index fell to its lowest level in seven months. On point, U.S. retail sales fell 0.9% in January, a stark reversal from the 0.7% gain registered in December. If consumer spending were to weaken, it could undermine the rate of gross domestic product (GDP) expansion. 

Meantime, fourth-quarter earnings season has surpassed expectations. With more than 75% of the S&P 500 companies having reported results as of press time, profit growth has averaged around 17%. If this holds firm, it would mark the strongest year-over-year earnings growth since the fourth quarter of 2021. 

Conclusion: With increasing uncertainty about the direction of fiscal and monetary policies, we think a well-diversified portfolio consisting of high-quality stocks and cash-equivalent holdings is warranted.

Source: ValueLine.com