Weekly Market Update – February 7, 2025

Quick Takes

• In a busy week of economic and corporate earnings reports the U.S. benchmark S&P 500 Index slipped -0.2%. Talk of tariffs weighed on investors at the beginning and ending of the week, as did unexpectedly high inflation expectations data and subpar tech earnings.
• The benchmark 10-year U.S. Treasury yield slipped -4 basis points to finish the week at 4.49% and the Bloomberg U.S. Aggregate Bond Index saw a +0.4% gain for a second straight week, while the Bloomberg Global Aggregate ex U.S. Bond Index gained +0.5%. 
• The highlight of the week’s economic calendar came from Friday’s closely watched nonfarm payrolls report. The U.S. economy added 143,000 jobs in January, down from an upwardly revised reading of 307,000 in December and below economists’ expectations for 170,000. The unemployment rate also declined unexpectedly, to 4.0% from 4.1% in the prior month.

Source: Bloomberg. Data as of February 7, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

A mixed week saw stocks fall modestly and bonds rise modestly

In a busy week of economic and corporate earnings reports the U.S. benchmark S&P 500 Index slipped -0.2%. Stocks opened the week sharply lower in response to the prior Friday’s announcement from President Donald Trump that the U.S. would be implementing 25% tariffs on imports from Mexico and Canada, along with 10% levies on Chinese imports, effective February 1. However, by the end of the day Monday, both countries showed a willingness to work with the U.S., resulting in President Trump delaying the tariffs for 30 days. That provided some relief for investors and by Friday morning stocks were briefly positive for the week following a relatively favorable response to the release of the January employment report, which showed a steady labor market and a slightly lower unemployment rate of 4.0%. However, the University of Michigan also released its latest consumer sentiment index later Friday morning, which showed eroding consumer sentiment and a sharp uptick in inflation expectations over the year ahead. It was the highest one-year inflation expectation since November 2023 and only the fifth time in 14 years that a large one-month rise (one percentage point or more) in year-ahead inflation expectations has occurred. That news seemed to trigger a market slide and then the selloff deepened after President Donald Trump said that he’d be announcing “reciprocal tariffs” whereby if any country has tariffs on American goods, the U.S. will respond with “the same exact tariff.” The inflation worries and renewed talk of tariffs ended any chance for the major indexes to make a weekly gain. 

The earnings season continued to garner headlines as well, and mega-cap darlings Alphabet (Google) and Amazon.com both disappointed the market with declining cloud computing business. The Nasdaq Composite Index, with a heavy weighting in both stocks, and the Technology sector overall, fell -0.5% for the week. 

Overall though, earnings have been solid. According to data from FactSet, with about 62% of the constituents of the S&P 500 having reported for Q4 2024, the blended earnings per share (which combines reported data with estimates for those that have yet to report) show that earnings rose around +16.4% compared from the same quarter a year ago.

The U.S. dollar slid -0.3% for the week, which helped developed market international stocks (as measured by the MSCI EAFE Index) to gain +0.2% and emerging market stocks (the MSCI Emerging Markets Index) to advance +1.4%. Most major European markets were up, with stock indexes for France, Germany, and Italy all up. The U.K. also saw stock gains and the Bank of England cut interest rates by a quarter point to +4.5%. In Asia, Japan’s Nikkei 225 Index fell -2.0%, weighed down in part from hawkish comments from the Bank of Japan. Chinese stocks reopened for trading on February 5 and made gains in the abbreviated week. 

In the world of bonds, U.S. Treasury yields gained on the softer-than-expected employment data. U.S. Treasury yields across most maturities decreased from where they ended the prior week (bond prices and yields move in opposite directions). The benchmark 10-year U.S. Treasury yield was off -4 basis points last week to finish the week at 4.49%. The Bloomberg U.S. Aggregate Bond Index saw a modest +0.4% gain for a second straight week, while non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, gained +0.5% for the week.

The Week Ahead

The economic calendar will let investors recover from the Super Bowl with no reports on Monday and just Small Business Optimism on Tuesday. Things heat up on Wednesday though when the Bureau of Labor Statistics (BLS) will publish the heavily watched Consumer Price Index (CPI) for January. That will be followed by wholesale inflation (Producer Prices) data from the BLS on Thursday. Finally, Friday brings more inflation data with Import and Export Prices plus Retail Sales and Industrial Production for January.

The busy earnings season will continue with consumer companies in the spotlight. Major names reporting next week include McDonald’s on Monday; Coca-Cola, DoorDash, Marriott, Shopify and Super Micro Computer on Tuesday; Wednesday brings Robinhood Markets, Ventas, and Vertiv Holdings, Airbnb, Applied Materials, Coinbase Global, Deere, Wynn Resorts, and Zoetis report Thursday; and on Friday Enbridge and Moderna close the week.

Outside the U.S., the first estimate for fourth quarter GDP in the European Union is due out on Friday.

Chart of the Week

The monthly Employment Situation report showed that new Non-Farm Payrolls (NFP) rose just by 143,000 in January, down from 307,000 (revised up from 256,000) the prior month. That was far short of Wall Street forecasts for 175,000 payrolls. November payrolls were revised higher to 261,000 from 212,000 for the prior estimate.  According to the Bureau of Labor Statistics report, Health Care added 44,000 jobs, Retail grew by 34,000 new positions, and Government added 32,000 new positions. Health Care and Government were among the top contributors to December’s gains as well. The Unemployment Rate slipped to +4.0% from +4.1% where it was expected to stay. The unemployment rate had been as low as +3.4% just 16 months ago and has eased off its three-year peak of +4.3% reached in July. Wages grew slightly more than expected, with Average Hourly Earnings increasing to +0.5% from the prior month’s +0.3%, which is what was forecasted. Year-over-year, Average Hourly Earnings were up +4.1%, as was the prior month after being revised higher from +3.9%. The Fed would like to see wage growth slow to around +3% annually or less, a level it sees as consistent with low inflation. Average Weekly Hours worked was down slightly to 34.1, below expectations for 34.3 but up from the 34.2 the prior month (revised down from 34.3). Labor-Force Participation ticked up to 62.6% from 62.5% where it was expected to remain.  The report also featured significant benchmark revisions to the 2024 totals that saw substantial downward changes to the previous payrolls level. The revisions, which the BLS does each year, reduced the jobs count by -589,000 in the 12 months through March 2024. A preliminary adjustment back in August 2024 had indicated -818,000 fewer jobs. 

January Only Sees 143,000 Jobs Created but the Unemployment Rate Fell to 4%

U.S. Unemployment rate, January 2021 – January 2025

Source: U.S. Bureau of Labor Statistics, CNBC.

Did You Know?

OPTIMISM ON THE RISE – The terms ‘optimism’ or ‘optimistic’ were mentioned by 61% of S&P 500 companies reporting Q4 earnings through 1/24/2025. That compares to an average of less than 44% dating back to 2003, and if the pace continues through the entirety of the earnings season, it would be the highest percentage since at least 2003. (Source: Bank of America)

AS GOES JANUARY – In the 42 years since 1953, when the S&P 500 was up in January, the median rest-of-year performance for the index was a gain of +13.5%, with positive returns 86% of the time. In the 30 down years for the S&P 500 in January, the median rest-of-year gain dropped to +3.5%, with gains 60% of the time. (Source: Bespoke)

AT LEAST IT’S THE SHORTEST MONTH – Over the last 50 years, the S&P 500’s average move during February has been a gain of +0.12%, with gains 56% of the time. February ranks as the second weakest month of the year behind September (-0.89%) and is the third weakest in terms of the consistency of gains. (Source: Bespoke)

This Week in History

thefacebook – On February 4, 2004, Mark Zuckerberg launched Facebook from his Harvard dorm. When originally launched as “[thefacebook]” it was solely used on desktop and laptop computers (there were no iPhones until a few years later). It took 8 years from launch for Facebook (the current ticker symbol is META) to become a publicly traded company. A $10,000 investment at the IPO on May 17, 2012, held through Friday would be worth over $188,000. However, holding over that entire period was always easy. From September 2021 to November 2022, META suffered a vicious bear market that resulted in a -76% drawdown. Since its lows in 2022, META has rallied nearly +700% and currently sits at all-time highs with a market capitalization of $1.8 billion. (Source: CNBC, Bloomberg)

Economic Review

• The preliminary reading of the December University of Michigan Consumer Sentiment Index fell to 67.8 from a 71.1 final reading the prior month and was well below expectations for 71.8. The results were driven by improved conditions for buying Durable Goods. The Current Economic Conditions component fell to 68.7 from the prior month’s 74.0, which was below expectations for a 73.7 reading. The Consumer Expectations component fell to 67.3 from 69.3 and was short of expectations for 70.1. One-year inflation expectations jumped to +4.3% from +3.3% which is where it was expected to remain. 5-10 year inflation expectations increase to +3.3% from 3.2% the prior month where they were expected to stay. 
• The Institute for Supply Management’s (ISM) Manufacturing PMI climbed to a 27-month high of 50.9% in January, up from 49.2% the month before, beating expectations for a 50.0% reading. This manufacturing PMI had been in contraction territory for two years (levels below 50 indicate contracting economic activity). The index had surged on optimism about Trump’s vow to cut taxes and reduce regulations, but now may face headwinds from President Trump’s announced tariffs on Canada, Mexico and China. The tariffs on Mexico and Canada were delayed for one-month, essentially for the month of February, but it is unclear where negotiations will go from there. “I don’t think tariffs are going to help us,” said Timothy Fiore, chair of the ISM survey. The index of New Orders, a sign of future demand, rose +3.0 points to 55.1, the highest level since the middle of 2022. The Production barometer increased +2.6 points to 52.5%. Employment climbed +4.9 points to 50.3%, the first positive reading in eight months. On the negative side, the Prices Paid index, a measure of inflation, moved up +2.4 points to 54.9%. 
• The Institute for Supply Management’s (ISM) Services PMI cooled off in January slipping to 52.8 from 54.0% the previous month, which is where it was expected to stay. Service-oriented companies, such as restaurants and retailers, employ the majority of Americans. The New Orders index fell -3.1 points to 51.3%. The Employment index rose 1 point to 52.3%. For services inflation, the Prices Paid index fell -4 points up to 60.4%. The services side of the economy has held up the U.S. for the past few years, and although it slowed it remains in expansion territory.
• Like the competing ISM report, the final S&P Global U.S. Manufacturing Purchasing Managers Index (PMI) returned to expansion in January, rising to 51.2 from a 50.1 preliminary ‘flash’ estimate two weeks ago, and up from the prior month’s 49.4 reading (levels above 50 indicate economic expansion, while levels below 50 indicate contraction). The start of the new year saw a surge in Confidence, which hit a 34-month high as more than half of respondents predicted a rise in manufacturing production over the coming year. Both New Orders and Output returned to growth levels in January, while optimism in the year-ahead outlook for production hit a 34-month high. The combination of higher New Orders and improving business Confidence led manufacturers to increase Employment for the third month running to the highest pace of job creation since June 2024.  Meanwhile, the rate of Input Cost inflation accelerated sharply again, which led to Output Prices rising for the third month running and reaching the highest since March 2024. 
• Also like the competing ISM report, the S&P Global U.S. Services PMI remained in growth territory at the start of 2025 but cooled to 52.9 in January from the hot 56.8 posted in December but was a tick higher than the 52.8 from the preliminary reading two weeks ago. Output has now increased on a monthly basis throughout the past two years, with the latest rise generally reflecting sustained New Order growth. The pace of Output expansion slowed sharply, however, and was the weakest since April 2024. Some panelists reported that the unusually freezing weather conditions seen in parts of the country had been behind the slowdown in growth. Higher Employment costs were the main factor behind a further sharp increase in Input Prices. The rate of inflation reached a three-month high. In line with the picture for input costs, the pace of Output Prices also quickened as companies passed through higher cost burdens to customers. The service companies expressed confidence in the outlook and took on extra staff to the largest degree in more than two-and-a-half years.
• The October Job Openings Labor Turnover Survey (JOLTS) showed Job Openings fell near a 4-year low of 7.60 million from 8.156 million the prior month (revised up from 8.098 million). That was well above expectations for 8.0 million. Job Openings peaked at 12 million in 2022, but companies have since cut back on hiring. Job openings rose the most in private education and accommodation and food services. Job openings sank in finance, professional occupations, healthcare and construction. Job openings are an indication of the health of the labor market and the broader U.S. economy. The ratio of Job Openings to Unemployed Workers was unchanged at 1.1 and is down from a peak of 2.0 in 2022 and at the prepandemic level the Fed wants to see it at. The Number of People Quitting Jobs was little changed at 3.2 million from 3.3 million the prior month. The record was 4.5 million job quitters in late 2021. The Quits Rate was also unchanged at 2.0% from the prior month. People tend to quit less often when the economy softens and jobs become harder to find. The Layoffs Rate remained at 1.1%, the same as the prior three months. The Hiring Rate was unchanged at 3.4%. 
• The Commerce Department reported U.S. Factory Orders fell -0.9% in December, more than the -0.8% expected which is where they were the prior month (revised lower from the initially reported -0.4%). Factory Orders Ex-Transportation were up +0.3%, a tick up from the +0.2% the prior month (unrevised). Durable Goods Orders for long-lasting items such as televisions, appliances and transportation equipment were down -2.2%, matching the initial estimate as expected. Durable Goods Orders Excluding Transportation were up +0.3, also matching the initial estimate as expected. The important Core Capital Goods Orders (capital goods excluding volatile sectors like transportation and defense), a proxy for business spending, was up +0.4%, shy of expectations for +0.5% which is where it was the prior month. Core Capital Goods Shipments, which are factored into GDP, rose +0.5%, also a tick below initial estimate and expectations which were both +0.6%. The key takeaway from the report is that the weakness in factory orders was concentrated in durable goods but business spending was up.
• U.S. Consumer Credit surged +$40.8 billion in December, the largest increase since June 2021, and far more than Wall Street forecasts for a +$15.5 billion increase. It compares to a -$5.4 billion decline the prior month (which was revised higher from the initially reported -$7.5 billion). That amounts to a +2.4% annual growth rate, up from a +1.8% annualized growth rate the prior month. Growth for revolving credit, such as credit cards, was up +20.2%, the largest monthly increase since June 2022. Nonrevolving credit, which tends to be much less volatile than revolving credit and includes auto as well as school loans, increased +5.8% following the prior month’s +2.7% rise. The data from the Federal Reserve is not adjusted for inflation and does not include mortgage loans, which is the largest category of household debt. The bottom line is that there was solid demand for consumer credit at the end of the year despite relatively high interest rates.
• The Commerce Department reported that Construction Spending rose +0.5% in December, up from +0.2% the prior month (revised up from 0.0%), and above expectations for +0.2%. Over the past year, construction spending is up +4.3%, unchanged from the previous month. Total Private Construction was up +0.9% after a +0.3% rise the month before and total Public Construction was down -0.5% compared to a -0.1% dip the prior month. Private Residential Spending rose +1.5% month-over-month and private Nonresidential Spending was down -0.2%. The report showed that single-family construction was up +1.0% and multifamily construction fell -0.3%.
• According to the U.S. Bureau of Economic Analysis, the U.S. Trade Deficit widened +24.7% in November to -$98.4 billion from -$78.9 billion the prior month. That was wider than the -$96.8 billion expected. Smaller trade deficits help contribute to economic growth, while larger deficits inhibit growth. Imports rose +3.5% to $364.9 as Industrial Supplies and Materials rose. Exports, particularly Consumer Goods and Industrial Supplies, fell by -2.6% to $266.5 billion after setting a record the prior month. The key takeaway from the report is that the big jump in imports was presumably a function of trying to get ahead of possible tariff actions.
• Weekly MBA Mortgage Applications were up +2.2% for the week ending January 31 following a -2.0% fall the prior week. The Purchase Index fell -3.5% after slipping -0.4% the prior week. The Refinance Index jumped +12.2% following the prior week’s -6.8% drop. The average 30-Year Mortgage Rate slipped to 6.97% from 7.02% the prior week.
• Weekly Initial Jobless Claims rose +8,000 to 219,000 for the week ending February 1, worse than expectations for claims of 213,000. The prior week was revised higher from 207,000 to 208,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose +36,000 to 1,886,000 in the week ending January 25, worse than expectations of 1,870,000 claims. Last week’s reading of 1,858,000 was revised lower to 1,850,000.

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.