US markets were closed on Monday for President’s Day. This left the focus on Europe where local stock markets, which have outperformed US stocks so far in 2025, were priced for what they perceive as a near-perfect outcome from the high-stakes German federal election coming up this weekend, which of course raises the risk of a nasty surprise if that doesn’t happen. A chasm is also opening up between Europe and the Trump administration over both tariffs and the Ukraine conflict.
Most European stocks fell on Monday but defense names spiked dramatically on the prospect of increased military spending in the region and kept the indexes looking buoyant.
US markets reopened on Tuesday enjoying a well-deserved break from new tariff talk (see OTHER NEWS .. TARIFF TIMETABLE EDITION below) for the first time in what seemed like ages with Trump’s attention diverted by attempts in Saudi Arabia to resolve the Russia/Ukraine conflict by cozying up with Russia while sidelining Ukraine (who Trump blamed for Russia’s invasion and whose president he called a “dictator without elections” ) and its European neighbors from any discussions.
Interest rates pushed higher, but the stock indexes celebrated the slow news day by going nowhere until a late surge propelled the S&P 500 to a small gain, but it was still enough to establish a new all-time record closing high for the index.
The holiday from tariff talk was short-lived as Trump came out and alluded to “something like” 25% automobile, chip, wood & lumber and pharmaceutical & medical levies supposedly coming sometime in April. As usual there was no detail. He is said to have specifically threatened top pharma company executives with harsh targeted tariffs if they continued to use overseas plants to produce any of their drugs.
But Wall Street clearly has tariff fatigue, just rolling its eyes and getting on with life on Wednesday. Stocks climbed modestly higher on the back of what was described as a “nothing-burger” from the published minutes of the last Fed meeting, but obviously reaching yet more record highs in the process. Crickets in the bond market.
Stocks fell quite hard from their record-setting levels on Thursday as Walmart’s poor results infected the whole retail sector as it seemed to confirm the previous week’s fragile Retail Sales data. Anecdotal evidence is growing that consumers are dealing with stubborn prices and high borrowing costs by turning to credit cards and other debt to support their spending. And a steadily-rising amount of that debt is starting to go bad.
Increasing geopolitical name-calling on Thursday and the fact that the US administration is falling squarely in line behind Russia is casting doubt in the minds of Wall Street on the likely acceptability or sustainability of any kind of settlement that could be cobbled together between Trump and Putin and then imposed on an unwilling Ukraine.
Cryptocurrencies got smacked around after what may be the biggest crypto hack in history. Crypto exchange Bybit admitted it had lost almost $1.5 billion-worth of mostly Ethereum client tokens to hackers who took control of offline wallets. Investigators are already pointing the finger of blame at North Korea for the looting.
Stocks opened lower on Friday, partly dragged down by continued woes at UnitedHealth Group, now the subject of a Department of Justice fraudulent billing probe. Losses accelerated as the session wore on with disappointing housing data and consumer sentiment reported to be plunging on the back of tariff fears and sticky inflation. There was also the general profit-taking effect that can sometimes accompany new record highs for the S&P 500. It all added up to the worst day of the young year for stocks. Bonds rallied as interest rates continued lower.
Meta/Facebook and Amazon are the only Magnificent Seven names to have outperformed the S&P 500 index so far in 2025 and the group as a whole closed on Friday in negative territory. Meanwhile, the number of other companies outpacing the index’s gain has soared to start the year. As of last week, a full 48% of the S&P 500 stocks are outperforming the index in 2025, that’s double the 24% in all of 2024.
Solid economic growth is still just about supporting a stock market that is entirely priced for good news in the face of other headwinds, but if it suddenly slows further, then all of the other issues (tariffs, sticky inflation, geopolitics) will suddenly take center stage and potentially become much more of a negative influence on stock prices.
OTHER NEWS .. (TARIFF TIMETABLE EDITION)
Tariff Threats That Have Been Implemented And Are In Force:
10% tariff on all Chinese imports. On 2/4, an additional 10% tariff on all imports from China (and this includes on electronics and other consumer items) was imposed. Because of inventory already in place, consumers likely haven’t experienced much of this price increase, but that will change in the coming weeks as fresh imports are shipped from China that are subject to the 10% duty.
Tariffs That Have Been Announced With An Expected Implementation Date:
25% tariff on all steel and aluminum imports starting on 3/12. The Trump administration says it will impose a 25% on all steel and aluminum imports (so not just from China) starting in on that date, which will clearly increase the cost of foreign steel to US manufacturers.
Tariff Threats That Have Been Delayed But Not Canceled:
25% tariff on imports from Canada and Mexico starting on 3/4. This is the date of the end of the one-month delay on the tariffs on Canada and Mexico and we’ll see if there can be enough concessions from the two countries to prevent implementation. If put in place, the key will be any carve-outs. If cars and energy (the two main imports from Mexico and Canada, respectively) are exempted, these tariffs will lose a lot of their bite.
Declared Yet-to-Be-Determined Tariffs (No Implementation Date Set):
Reciprocal tariffs on major trade partners and trade reviews and tariff recommendations from other parts of government and 25% global tariffs on automobile, chip, wood & lumber and pharmaceutical & medical products. No details are available about the timing of these proposed levies or any possible exemptions.
ARTICLE OF THE WEEK ..
Big Tech Is Going Through A Mid-Life Crisis.
THIS WEEK’S UPCOMING CALENDAR ..
The last week of February will be a big one for Wall Street with Nvidia's earnings and the Federal Reserve's preferred inflation gauge serving as highlights.
In addition to Nvidia, Lowe’s, Home Depot, Salesforce, eBay, Hewlett Packard, Anheuser-Busch, Zoom, Warner Bros, Workday, TJX, Snowflake, Domino's Pizza and Autodesk will also report Q4 2024 earnings this week.
The Personal Consumption Expenditures (PCE) price index measure of inflation for January comes out on Friday. Forecasts are for a 2.5% year-over-year increase, down slightly from December.
We will also see the second estimate (of three) of Q4 2024 Gross Domestic Product (GDP) on Thursday.
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing U.S. sector: Energy (two biggest holdings: Exxon Mobil, Chevron) ⬆︎ 1.4% for the week.
Last week’s worst performing U.S. sector: Consumer Cyclical (two biggest holdings: Amazon, Tesla) ⬇︎ 3.7% for the week.
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price fell 1.6% last week, is up 2.4% so far this year and ended the week 2.1% below its all-time record closing high (02/19/2025).
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price fell 3.7% last week, is down 1.4% so far this year and ended the week 10.2% below its all-time record closing high (11/08/2021).
INTEREST RATES:
FED FUNDS * ⬌ 4.33% (unchanged)
PRIME RATE ** ⬌ 7.50% (unchanged)
3 MONTH TREASURY ⬇︎ 4.32% (4.34% a week ago)
2 YEAR TREASURY ⬇︎ 4.19% (4.26% a week ago)
10 YEAR TREASURY *** ⬇︎ 4.42% (4.47% a week ago)
20 YEAR TREASURY ⬇︎ 4.69% (4.75% a week ago)
30 YEAR TREASURY ⬇︎ 4.67% (4.69% a week ago)
Treasury data courtesy of ustreasuryyieldcurve.com as of the market close on Friday.
* Decided upon by the Federal Reserve. Used as a basis for interbank loans and for determining high yield savings rates.
** Used as a basis for determining many consumer loan rates such as credit cards, home equity and auto.
*** Used as a basis for determining mortgage rates.
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬇︎ 6.85%
One week ago: 6.87%, one month ago: 7.00%, one year ago: 6.90%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEDWATCH INTEREST RATE TOOL:
Where will the Fed Funds interest rate be after the next rate-setting meeting on March 19th?
Unchanged from now .. ⬇︎ 94% probability (96% a week ago)
0.25% lower than now .. ⬆︎ 6% probability (4% a week ago)
What is the most commonly-expected number of 0.25% Fed interest rate cuts in 2025?
⬆︎ 2 (up by one from a week ago)
All data based on the Fed Funds interest rate (currently 4.33%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
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