Weekly Market Update – February 28, 2025

Quick Takes

• President Donald Trump’s tariff announcements, along with stubbornly high inflation data, and some growth concerns from economic data that has recently lagged Wall Street expectations, has shaken investor confidence.
• The benchmark S&P 500 Index fell about -1% for the week, while the small cap Russell 2000 Index was down -1.5%, and the tech-heavy Nasdaq Composite Index slumped -3.5%. The MSCI EAFE Index slipped -0.8% and the MSCI Emerging Markets Index sank -4.4%.
• Tariff headlines continued to unsettle markets as Trump confirmed that previously delayed 25% tariffs on imports from Canada and Mexico would indeed go into effect in March, along with an additional 10% tariff on imports from China.

Source: Bloomberg. Data as of February 28, 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.

Policy Uncertainty and Growth Concerns Send Stocks Lower

Rising investor sentiment following President Donald Trump’s election victory last fall through January’s inauguration has faded as a result of his tariff announcements, stubbornly high inflation data, and some growth concerns from economic data that has recently lagged Wall Street expectations. The benchmark S&P 500 Index fell about -1% for the week, while the small cap Russell 2000 Index was down -1.5%, and the tech-heavy Nasdaq Composite Index slumped -3.5%. 

Tariff headlines continued to unsettle markets as Trump confirmed that previously delayed 25% tariffs on imports from Canada and Mexico would indeed go into effect in March, along with an additional 10% tariff on imports from China. Meanwhile, a meeting with Trump and Ukraine President Volodymyr Zelenskyy at the White House was expected to result in a resolution to the Russia-Ukraine war and U.S.-Ukraine rare-earths minerals deal. Instead, the meeting turned contentious, and Zelenskyy departed the White House without a deal.

Investors also had to digest the latest Personal Consumption Expenditures (PCE) price index, which rose +2.5% in January from a year earlier. The Core PCE Price Index is the Federal Reserve’s preferred inflation measure, and it increased +0.3% as expected. However, the report also showed that Consumer Spending slowed -0.2%, despite a rise in income during the month, a potential warning sign for the economy. 

On the earnings front, Artificial Intelligence poster child and chip giant, Nvidia reported strong fiscal fourth-quarter profits, but still fell more than -8% because expectations had soared. The price weakness in Nvidia helped push the entire Technology sector, and the Nasdaq, lower for the week.

Overseas stocks were also negative, although developed market international stocks (as measured by the MSCI EAFE Index) were down just -0.8%, but emerging market stocks (the MSCI Emerging Markets Index) sank -4.4%. 

Bond yields continued their descent, with the benchmark 10-year U.S. Treasury yield dropping -22 basis points to finish the week at 4.21%. It was the seventh straight week of yield declines.  The yield on the 2-year Treasury note fell -21 basis points to finish the week at 3.99%. The Bloomberg U.S. Aggregate Bond Index was up for a seventh consecutive week, gaining +1.3%. Non-U.S. bonds, as measured by the Bloomberg Global Aggregate ex U.S. Bond Index, slid -0.3% though.

The Week Ahead

Despite an empty calendar on Tuesday, it will be a full week of economic data, with the highlight being Friday’s employment report for February. But before that investors will be watching the Purchasing Manager’s Indices (PMIs) from ISM and S&P Global. The manufacturing PMIs come on Monday and then the services PMIs are released on Wednesday. Factory and durable goods orders are also set for Wednesday.

Earnings from retailers this week include Target and Best Buy on Tuesday, followed by Macy’s, Kroger, Costco Wholesale, Gap, and Burlington Stores on Thursday. Other major names reporting quarterly earnings during the week include CrowdStrike and Broadcom.

Chart of the Week

The Conference Board’s Consumer Confidence Index retreated to 98.3 in February, down from 105.3 the prior month (which was revised up from 104.1). That was below Wall Street expectations for a decline to 102.5 and the largest monthly decline since August 2021. The Present Situation gauge improved to 136.5 from 1139.9 (which was revised higher from the originally reported 134.3). The Expectations gauge — which reflects consumers’ six-month outlook — dropped to 72.9 from 82.2 the prior month (revised lower from 86.5). This is the first sub-80 reading since June 2024. Levels below the 80 mark on the expectations index often signal a recession within the next year. In good times, the index can top 120 or more. A key takeaway is that confidence dropped across all age groups with worries about tariffs, inflation, and future employment prospects driving the decline.

U.S. Consumer Confidence Drops by Most Since 2021 but Remains Rangebound

The Conference Board’s Consumer Confidence Index

Source: The Conference Board, Briefing.com.

Did You Know?

GIVING MORE THAN THEY GET – Through 2022, just 11 US states paid more to the Federal government than they received. The four states that paid out the most per capita on a net basis were Massachusetts (-$3.9K), New Jersey (-$3.1K), Washington (-$2.3K) and California (-$2.1K). (Source: Rockefeller Institute, MFS)

NEW ETF KING  – With $25 billion in inflows so far in 2025, the Vanguard S&P 500 ETF (VOO) has seen its total assets increase to $632 billion, marginally eclipsing the assets in the State Street S&P 500 SPDR ETF (SPY). The key differentiator between the two ETFs are the annual fees, 0.095% for SPY versus just 0.03% for VOO. (Source: Yahoo Finance)

BIG SPENDERS – The share of all U.S. spending that’s attributed to well-off consumers is estimated at 49.7%—a record in data going back to 1989, according to Moody’s Analytics. Three decades ago, their share accounted for about 36%. The top 10% of earners are splurging, buoyed by big gains in stocks, real estate and other assets. (Source: Moody’s Analytics, The Wall Street Journal)

This Week in History

TERM LIMITS – On February 27, 1951, the 22nd Amendment, limiting presidents to two terms, was ratified. Minnesota was the 36th state to formally consent. (At the time, the country had 48 states; three quarters were needed for ratification.) Congress had passed the amendment in March 1947, concerned that the presidency could become a dictatorship. The move came two years after Franklin D. Roosevelt’s fourth inauguration. Serving for two terms had been the tradition since George Washington’s presidency. 

Economic Review

• The U.S. economy moderated but remains solid with real Gross Domestic Product (GDP) unchanged with the second revision at a +2.3% pace in the fourth quarter. However, inflation was a bit worse than previously reported in the initial estimate. Consumer Spending, the main engine of the economy, rose at a frothy +4.2% annual pace in the fourth quarter, the same as the preliminary estimate and remained the largest contributor to Q4 GDP growth. Inventory Investment was a large drag. Other notable changes: Business Investment in structures was actually positive, not negative as previously reported. Government Spending was also larger. For the full year, GDP increased +2.8%. The Saving Rate dropped to 3.8% from 4.1% in the third quarter. 
• Personal Spending slipped -0.2% in January, short of expectations for +0.2% and down sharply from +0.8% the prior month (revised higher from +0.7%). That was the first drop in 22 months, following heavy spending in the months ahead of the winter holidays. After adjusting for inflation, Real Personal Spending declined -0.5% for the month. Meanwhile, Personal Income rose +0.9%, well above expectations for +0.3% and up from an unrevised +0.4% the prior month. Real Disposable Income was up +0.6% month-over-month, its strongest monthly gain in more than a year. The Personal Savings Rate jumped from +3.5% to +4.6%, its highest since June. The bottom line is that there was a noticeable deceleration in inflation-adjusted which will be a detractor from Q1 GDP. 
• The cost of goods and services rose for the fifth straight month in January, with the Personal Consumption Expenditure (PCE) Deflator (aka PCE Price Index) up +0.3%, the same as the prior month, as expected. On a year-over-year basis, the PCE Price Index was up +2.5%, compared to +2.6% the prior month. The Core PCE Price Index, which excludes food and energy and is the Fed’s preferred inflation gauge, rose by +0.3% for the month, matching expectations and up from +0.2% the prior month (unrevised). Year-over-year, the Core-PCE Price Index was up +2.6%, where it was expected to come in, and down a +2.9% annual rate the prior month.
• The Commerce Department reported Durable Goods Orders for long-lasting items such as televisions, appliances and transportation equipment rose +3.1% in January, well above expectations for +2.0% and above the prior month’s -1.8%, revised up from -2.2%. Durable Goods Orders Excluding Transportation were flat, under expectations for +0.4% and down from the prior month’s +0.1%, which was revised down from -0.3%. The important Core Capital Goods Orders (capital goods excluding volatile sectors like transportation and defense), a proxy for business spending, was up a healthy +0.8%, beating expectations for +0.3%. That follows a +0.9% rise the prior month (revised sharply higher from +0.4%). That was the biggest gain in 15 months. Core Capital Goods Shipments, which are factored into GDP, rose +0.6%, beating expectations for a +0.3% increase and up from +0.2% the month before (revised down from +0.4%). 
• The Conference Board’s Consumer Confidence Index retreated to 98.3 in February, down from 105.3 the prior month (which was revised up from 104.1). That was below Wall Street expectations for a decline to 102.5 and the largest monthly decline since August 2021. The Present Situation gauge softened to 136.5 from 139.9 (which was revised higher from the originally reported 134.3). The Expectations gauge — which reflects consumers’ six-month outlook — dropped to 72.9 from 82.2 the prior month (revised lower from 86.5). This is the first sub-80 reading since June 2024. Levels below the 80 mark on the expectations index often signal a recession within the next year. In good times, the index can top 120 or more. “In February, consumer confidence registered the largest monthly decline since August 2021,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022.”
• The Commerce Department reported New Home Sales dropped -10.5% in January to a rate of 657,000 units after the prior month’s +3.6% increase, or a 734,000 units annual rate, revised up from 698,000 units. That was ahead of expectations for a +1.7% increase to a 681,000 unit annual rate. New Home Sales data tend to be volatile month-on-month and are often revised. New-home sales remain far below the recent peak of over 1 million units in August 2020. Year-over-year, sales of new homes were down -1.1% following the +6.7% annual rate the prior month. By region, month-over-month sales were down -20.0% for the month and -48.1% for the trailing year. In the Northeast sales were down -20% for the month and -48.1% for the year. The West was up +7.7% for the month and +3.1% for the year. The Midwest saw sales drop -16.7% for the month and -13.6% for the year. The South was down -14.8% for the month and up +6.8% for the year. The Median New Home Price rose to $446,300 from $427,000 the prior month. The months of supply at the current rate of sales was 9.0, up from 8.5 the prior month.   
• The National Association of Realtors (NAR) reported that Pending Home Sales fell -4.6% in January after last month’s -4.1% drop (revised up from -5.5%), which was well short of Wall Street expectations for a -0.9% dip. Year-over-year sales were down -5.2%, below the -3.1% fall the prior month (revised down from -2.9%) and short of the -1.1% slide expected. From a regional perspective, the Midwest contracted -2.0%, the South plunged -9.2%, the West was down -1.2%, and the Northeast saw a modest gain of +0.3%. Year-over-year, contract signings lowered in all four U.S. regions, with the South seeing the greatest falloff. “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” said NAR Chief Economist Lawrence Yun. “However, it’s evident that elevated home prices and higher mortgage rates strained affordability.” 
• According to the Case-Shiller S&P CoreLogic 20-City Home Price Index, the pace of U.S. housing prices quickened in December and marked a new record high price level. Home prices in the 20 biggest U.S. metropolitan areas increased a seasonally adjusted +0.52%, above expectations for a +0.40% increase and up from a +0.44% increase the prior month (revised up from +0.41%). On a year-over-year (YoY) basis, the 20-city index was up +4.48%, above expectations for +4.41% and up from the prior month’s +4.35% annual pace (revised higher from +4.33%). New York remained in the top spot over Chicago with the biggest year-over-year home-price gains (up +7.2% and +6.6% respectively). Tampa and Denver remain at the bottom of the list of annual gains (at -1.1% and +1.5% annual rates respectively).  
• The competing Federal Housing Finance Agency (FHFA) House Price Index (HPI) also showed U.S. home prices move up in December, with the index hitting an all-time high of 436.10. The government agency reported prices rising +0.4%, the same as the prior month after it was revised higher from +0.3%, which is where Wall Street expected it to stay. It was the 7th month of increases. The government data showed home prices up +4.7% year-over-year, up from a +4.5% annual rate the prior month. House prices were up YoY in all of the 9 regions, with the highest rate in the Middle Atlantic (+7.1%). The West South Central division recorded the smallest YoY appreciation, at +2.3%.
• The Federal Reserve Bank of Chicago reported that U.S. economic activity fell in January. The Chicago Fed National Activity Index (CFNAI) dropped to -0.03 from +0.18 the prior month (which was revised up from the originally reported +0.15). That is slightly better than expectations for a -0.05 reading. Readings below zero indicate below-trend-growth in the national economic activity. Two of the four broad categories of indicators used to construct the index improved from the prior month, and three were in positive territory. The Production and Income category contributed +0.03, down from +0.19 the prior month. The Employment, Unemployment, and Hours category contributed +0.07, up from +0.01 the prior month. The Personal Consumption and Housing category was down sharply to -0.14 from +0.02 the prior month. The Sales, Orders, and Inventories category contribution was flat, up from -0.04 the prior month. Overall breadth of the index was poor with just 39 of the 85 individual indicators making positive contributions, while 46 indicators detracted from the index. The CFNAAI three-month moving average increased to +0.3 from -0.13 the month before, indicating that the economy has been expanding at its historical trend rate of growth over the past three months. During the last 20 years, there has been a 91% correlation between the three-month index level and the quarterly change in real GDP. 
• The Texas Manufacturing Outlook Survey showed Texas factory activity dropped in February with the General Business Activity index falling to -8.3 from an unrevised three-year high of +14.1 the prior month. That was far short of expectations for a +6.4 reading. The Production index, a key measure of state manufacturing conditions, fell to -9.1 from +12.2. The New Orders index fell to -3.5 from +7.7 and Shipments slipped to +5.6 from +8.7. The Company Outlook index plunged to -5.2 from +18.7, breaking four consecutive positive months. Number of Employees fell -2.9 points to -0.7 and Hours Worked dropped -16 points to -14.2. marginally and Wages and Benefits fell as well. Prices Paid soared to +35.0 from +17.5 and Prices Received inched up to 7.8 from 6.2. Indicators of conditions six months from now advanced significantly and are now well above their customarily optimistic levels. The Texas Service Sector Outlook Survey declined for the month, sliding down to +4.6 from +7.4 the prior month (unrevised).
• The Richmond Fed Manufacturing Survey improved to +6 from an unrevised -4 the prior month, which easily beat expectations for a -3 reading. It was the first expansion reading following fifteen consecutive months of negative readings. All three component indexes improved but two remain in contraction territory. The Shipments component rebounded sharply higher to +12 from -9. The New Orders index was flat (0.0), up from -4 the prior month. The Employment index improved +6 points to +9. However, the future indexes for activity six months from now were mostly lower. The Richmond Fed Service Sector Survey decreased to +1 from +7 the prior month.
• The Kansas City Fed Manufacturing Survey was unchanged at -5 in February from the unrevised January result. That was worse than expectations for a -4 reading. Current business conditions worsened. The Production index dropped to -13 from -9. New Orders ticked down slightly to -7 from -6 over. Employment-related indexes stumbled. The Number of Employees fell to -14 from +1. The Average Employee Workweek declined from +1 to -9. The Prices Paid index jumped to +38 from +18. The Kansas City Fed Service Sector Outlook Survey rose to +2 from -4 the prior month (unrevised).  
• The Chicago Purchasing Managers Index (PMI), a barometer for the Chicago region’s business and manufacturing conditions (also known as the Chicago Business Barometer), improved to 45.5 in January from an unrevised 39.5 the prior month. That was well above Wall Street expectations for a 40.8 reading. Readings below the 50 level indicate contraction. This was the second increase after three consecutive monthly declines, however it remains in contraction territory for the 14th consecutive month. Four of the five sub-components rose as New Orders, Production, Supplier Deliveries, and Order Backlogs were up while Employment fell.
• Weekly MBA Mortgage Applications fell -1.2% for the week ending February 21 following a -6.6% drop the prior week. The Purchase Index inched up +0.2% after falling -5.9% the prior week. The Refinance Index was down -3.6% following the prior week’s -7.3% drop. The average 30-Year Mortgage Rate slipped to 6.88% from 6.93% the prior week.
• Weekly Initial Jobless Claims increased by +22,000 to 242,000 for the week ending February 22, worse than expectations for claims of 221,000. The prior week was revised higher from 219,000 to 220,000. The number of people already collecting unemployment claims (i.e., Continuing Claims) fell by -5,000 to 1,862,000 in the week ending February 15, better than expectations of 1,871,000 claims. Last week’s reading of 1,869,000 was unrevised lower to 1,867,000.

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.