AE Wealth Management: Weekly Market Insights | 2/23/25 – 3/1/25
Weekly Market Commentary
THE WEEK IN REVIEW: February 23, 2025 – March 1, 2025
Markets continue to stumble
Last week was rough as markets fixated on negative news. The markets swooned as the administration announced tariffs would be imposed on Canada, Mexico and China on March 4, after it was determined not enough progress was made in the areas of immigration and drug smuggling during the initial 30-day delay.1 The specter of tariffs on the European Union also weighed on the market.2
The continual tariff talk, lower consumer confidence, softer housing data and stubborn inflation readings have dampened much of the enthusiasm we saw in January.3,4 Prices remain high, while home costs and interest rates are still elevated. The constant handwringing of on-again, off-again tariffs and the negativity around them has caused confusion in the markets.
How long tariffs will remain in place is anyone’s guess, but the longer they remain, the more permanent they will feel. What may happen is that companies (and the economy) will adjust to the new reality and move on. But change is always difficult, especially when it’s of this magnitude. Layer on top of that the upheaval in the status quo with respect to the government and what the Department of Government Efficiency (DOGE) is doing, and it’s no wonder people are nervous.5
It would be hard to find anyone who thinks it’s OK for other countries to charge us tariffs and not expect us to charge tariffs on their goods; that doesn’t seem fair. It would also be tough to find anyone who thinks government waste is fine and should remain as is. And very few people think it’s OK for the war in Ukraine to continue or that we shouldn’t secure our borders. The concern is how do we go about doing all these monumental things and what methods are we employing? That’s what’s driving a lot of this angst.
A strong January was wiped out by an equally abysmal February, especially the last half of the month. Inflation data isn’t trending downward, which adds to the exhaustion. The latest personal consumption expenditures (PCE) report, the Fed’s preferred measure of inflation, was mostly unchanged from last month but stopped the bleeding a bit on Friday because it wasn’t worse.6
Market downturns are common; we can expect, on average, at least a 5% downward move once year.7 Markets are volatile now, but stick to your plan. When the tariff clouds lift (and they will), markets should bounce back quickly.
Yields dip as investors scurry for safety
Well, that didn’t take long. Barely a week after closing at a new record on the S&P 500, all it took was some disappointing news for markets to pick up the calls for the Federal Reserve to do another rate cut in June.8 But it wasn’t pressure from the administration and market pundits calling for lower rates that moved the bond market — it was concerns from nervous investors.
The 10-year Treasury note, which until very recently was pushing close to 5%, was yielding below 4.25% last Friday.9 As cataloged in the section above, the impact of tariffs and consumer sentiment about the economy led to a garden variety sell-off in stocks, with investors heading for the safety of government bonds. As bond demand drove prices up, yields dipped since yield and price move in opposite directions.
Suddenly, investors decided prospects for the economy have dimmed. Whether it’s the trade tariffs or a weaker consumer is up for debate, but suffice it to say the market smells economic weakness. Falling yields have revived talks of a potential rate cut from the Fed in June. A few weeks ago, the market had all but convinced itself we might see only one or maybe two rate cuts by year-end — a time so far into the future as to make the prediction meaningless. Now we’re suddenly talking about a cut in June.
Are we just setting ourselves up for more disappointment? Inflation is still a problem, and the Fed has said it needs to see improvement. Friday’s PCE report for January was far from an improvement. In fact, it just treaded water from the month prior and showed personal income rose significantly in January, which could be construed as inflationary. Plus, consumer spending was down, which can also be read as recessionary. Neither is good.10
Where does that leave the Fed? If it’s in wait-and-see mode, the market may make the decision for it. That’s why the administration is looking at what the 10-year Treasury is doing — and right now, either rightly or wrongly, it’s showing interest rates are declining as a result of economic fears.
Coming this week
- The first week of March will start with jobs data for February. On Wednesday, we’ll get the ADP employment report, followed by the Bureau of Labor Statistics’ (BLS’) non-farm payrolls report on Friday. Any weakness in jobs will lead to more calls for the Fed to ease rates as a weaker jobs picture will be perceived as a prelude to recession. Last month’s BLS employment report showed 143,000 jobs were created and the unemployment rate stood at 4%, while hourly wages were running higher than inflation at 4.1%.11 Any meaningful decline from these levels could cause the markets to worry even more.
- Speaking of the Fed, officials will be making various appearances throughout the week.
- Data will be light on Monday and Tuesday, with only auto sales for February reported. Other data this week will include factory orders, the Fed Beige Book and MBA mortgage applications on Wednesday and U.S. productivity for the fourth quarter of 2024, the trade deficit and wholesale inventories on Thursday.
Index Performance Returns % | |||||
| 1 WK | YTD | 1YR | 3YRS | 5YRS | |
| S&P 500 | -0.97% | 1.24% | 16.84% | 10.83% | 15.05% |
| NASDAQ | -3.47% | -2.40% | 17.12% | 11.08% | 17.08% |
| DJIA | 0.95% | 3.05% | 12.42% | 8.96% | 11.53% |
Interest Rates: | |||||
| 2/28/2025 | 2/21/2024 | ||||
| UST 10 YR Government Bond Yield | 4.20% | 4.43% | |||
| Germany 10 YR | 2.39% | 2.45% | |||
| Japan 10 YR | 1.37% | 1.42% | |||
| 30 YR Mortgage | 6.75% | 6.90% | |||
| Oil | $69.94/ppb | $70.25/ppb | |||
| Regular Gas | $3.10/ppg | $3.15/ppg | |||
| All data as of Feb. 28, 2025 | |||||
Sources:
1 Adetayo Osuntogun. The National Law Review. Feb. 28, 2025. “U.S. Moving Forward With Tariffs on Canada, Mexico Imports and Increasing China tariffs.” https://natlawreview.com/article/us-moving-forward-tariffs-canada-mexico-imports-and-increasing-china-tariffs. Accessed March 2, 2025.
2 Raf Casert. The Associated Press. Feb. 27, 2025. “EU pushes back hard against Trump tariff threats and his caustic comments that bloc is out to get US.” https://apnews.com/article/eu-us-trump-trade-war-tariffs-e799b44cbaf81b19c37a57d7fd55ee6d. Accessed March 2, 2025.
3 Jeff Cox. CNBC. Feb. 25, 2025. “February consumer confidence posts biggest drop since 2021 in latest sign of slowing economy.” https://www.cnbc.com/2025/02/25/february-consumer-confidence-comes-in-lighter-than-expected-in-latest-sign-of-slowing-economy.html. Accessed March 2, 2025.
4 Aarthi Swaminathan. MarketWatch. Feb. 26, 2025. “The brightest spot in the housing market is fading fast.” https://www.marketwatch.com/story/the-brightest-spot-in-the-housing-market-is-fading-fast-05044a72. Accessed March 2, 2025.
5 Federal Register. Feb. 26, 2025. “Implementing the President’s ‘Department of Government Efficiency’ Cost Efficiency Initiative.” https://www.federalregister.gov/documents/2025/03/03/2025-03527/implementing-the-presidents-department-of-government-efficiency-cost-efficiency-initiative. Accessed March 2, 2025.
6 Bureau of Economic Analysis. Feb. 28, 2025. “Personal Income and Outlays, January 2025.” https://www.bea.gov/news/2025/personal-income-and-outlays-january-2025. Accessed March 2, 2025.
7 Capital Group. “What past stock market declines can teach us.” https://www.capitalgroup.com/individual/planning/market-fluctuations/past-market-declines.html. Accessed March 2, 2025.
8 Reuters. Feb. 25, 2025. “Fed seen resuming rate cuts in June as consumer confidence takes a dive.” https://www.reuters.com/markets/rates-bonds/fed-seen-resuming-rate-cuts-june-consumer-confidence-takes-dive-2025-02-25/. Accessed March 2, 2025.
9 CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US.10. Accessed March 2, 2025.
10 Lucia Mutikani. Reuters. Feb. 28, 2025. “US consumer spending posts first drop in almost two years.” https://www.reuters.com/markets/us/us-consumer-spending-falls-january-monthly-inflation-rises-2025-02-28/. Accessed March 2, 2025.
11 U.S. Bureau of Labor Statistics. Feb. 7, 2025. “Employment Situation Summary.” https://www.bls.gov/news.release/empsit.nr0.htm. Accessed March 2, 2025.
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