Weekly Market Update: March 3, 2025
The U.S. economy is showing some signs of softness. True, the nation’s gross domestic product (GDP) did expand by an estimated 2.8% in 2024, but recent economic data have revealed some patches of weakness, including in the residential construction market. In January, retail sales fell 0.9%; and housing starts and building permits slowed. Meanwhile, the Institute for Supply Management reported that non-manufacturing (services) activity increased for a seventh consecutive month in January, though the rate of expansion slowed compared to the December reading. Also on the positive side, manufacturing activity expanded in January after 26 consecutive months of contraction.
The consumer sector, the linchpin of the recent multiyear economic expansion, has shown signs of fatigue in early 2025. The re-acceleration in inflation at both the producer (wholesale) and consumer levels in recent months, along with concerns about a series of potential tariffs on internationally produced goods entering the United States, has worried consumers and may force them to change their spending habits in the months ahead. On point, the University of Michigan’s Consumer Sentiment Index fell sharply in January, and the same survey showed that consumer expectations for inflation were at the highest level since November of 2023. During its latest conference call, retailing behemoth Walmart echoed concerns about the state of the U.S. consumer.
The price of gold continues to rise. In late February, the precious metal was trading just below the $3,000-an-ounce mark. The increased demand for gold can signal a few things, including concerns about a spike in inflation and worries about slowing economic growth. The labor market has held up very well, but if it were to start to weaken, it could bring talk of stagflation, which occurs when slowing growth and higher unemployment are accompanied by inflation. While this is not a concern for the Federal Reserve at this time, this may cause the central bank to take a more-cautious stance on monetary policy until we get more clarity on the tariffs front from the Trump Administration.
Conclusion: Stock market volatility picked up in the second half of February, as uncertainty about near-term fiscal and monetary policies increased. Given this backdrop, we continue to recommend maintaining a diversified portfolio consisting mostly of high-quality stocks and cash-equivalent assets.
Source: ValueLine.com
