Markets Blog
David Matzko, LPL Research
LPL Research provides its Weekly Market Performance for the week of February 10, 2025. Major U.S. indexes celebrated Valentine’s Day with solid weekly gains and increased rate-cut bets after another busy week for macro data and trade headlines. The S&P 500 moved back toward record territory while the European benchmark STOXX 600 extended recent gains with fresh all-time highs. Treasury yields ended the week lower following a slow start to the week, while in commodities and currencies, crude oil prices fell and the U.S. dollar weakened, while gold continued to march higher.
Index Performance
U.S. and International Equities
U.S. Equities: Major averages locked in a weekly gain despite a flurry of fresh headlines from Washington to Wall Street and a busy economic calendar. The Nasdaq earned bragging rights for the largest advance this week with a 2.5% gain, while the benchmark S&P 500 index added 1.6% over the last five days. The Dow Jones Industrial Average moved 0.7% into positive territory.
U.S. stocks opened the week higher but broadly treaded water as markets sniffed for clues from Federal Reserve (Fed) Chair Jerome Powell’s semi-annual monetary policy testimony. While Powell’s remarks offered little insight into the central bank’s rate-cutting path, focus shifted to the latter half of the week’s macro events for clues, kicked off by the January reading of the Consumer Price Index (CPI). Equities weakened briefly as rate cut bets were pushed further down the line after inflation ran hotter than expected last month, but stocks felt some relief after a lukewarm wholesale inflation data on Thursday indicated little impact on the Fed’s preferred inflation gauge, core Personal Consumption Expenditures (PCE). Nonetheless, rate cut bets increased by the end of the week as consumers took a breather from their late 2024 spending spree, but the market reaction was limited as stocks traded sideways to end the week.
Outside of macro news, major averages did feel some positive support after President Trump announced reciprocal tariffs would not be enacted until April, with Commerce Secretary Howard Lutnick determining appropriate actions on a country-by-country basis. Otherwise, the broader market narrative was little changed, with Wall Street chatter continuing to feature upbeat earnings takeaways and tech shares rebounding from recent losses.
International Equities: European equities extended their 2024 rally, continuing to reach new all-time highs. Corporate earnings remained in focus with the latest quarterly results highlighted by a revenue growth beat from Nestle, strong earnings from engineering giant Siemens on electrification product demand, and better-than-expected sales from luxury designer Hermes. Meanwhile, the most notable bullish factor for the region was hopes of a ceasefire between Russia and Ukraine after President Trump and Russian President Vladimir Putin agreed to negotiate a resolution to the war in Ukraine. Simultaneously, sentiment in the U.K. was rocky after the latest forecast from the U.K. Office of Budget Responsibility indicated that finance minister Rachel Reeves is on course for a budget deficit, and the U.K. faces spending cuts or higher taxes, leading the U.K. to underperform with a slight gain.
Asian markets ended mostly higher, locking in the fifth consecutive weekly gain for the broader region. Sentiment was lifted by President Trump delaying reciprocal U.S. tariffs as well as ceasefire talks between Trump and Putin, although tech shares in Hong Kong continued to draw attention. Hong Kong led the region with a 7% surge as artificial intelligence (AI) related stocks extended gains on the back of AI advancement enthusiasm following last month’s DeepSeek news. Mainland China also ended with a solid gain, while South Korea advanced and Japan edged higher amid ongoing currency volatility. Taiwan and India were the lone major markets to end lower on the week.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg U.S. Aggregate Index traded slightly higher this week. Following hotter than expected consumer inflation data on Wednesday, Treasury yields jumped across the curve as bets for the next Fed rate cut were pushed out further towards the end of 2025, before rates felt some relief as fears of hotter-than-feared PCE abated and rate cut hopes rose following weak retail sales data. The rate-sensitive two-year Treasury yield and the 10-year yield both ended the week slightly lower.
While the bond market continued to digest fluctuating rate-cut expectations, investors continue to analyze the large amount of Treasury debt coming due in 2025, with (as of Thursday morning) $9 trillion set to mature this year alone. While most of that debt is in shorter-maturity T-Bills, roughly $2.5 trillion is in securities that pay coupons that, in most cases, will need to be refinanced at higher rates. Of the $2.5 trillion set to mature this year, nearly $1 trillion has a coupon of less than 2.5%. In fact, the weighted average coupon for the entire Treasury debt stock is just shy of 2.75% — most of which was issued during the pre-COVID-19 zero interest rate policy (ZIRP) environment. With the entire Treasury yield curve trading above 4.25%, refinancing existing debt is set to add trillions of dollars to the deficit over the next decade. For example, Wednesday’s $66 billion 10-year Treasury auction, which was met with tepid demand and ultimately ended up with a 4.625% coupon, refinanced a 2015 vintage 10-year security with a stated coupon of 2%. The difference in interest rates is set to add $1,732,500,000 in interest payments over the next decade with this refinancing alone. Now, to be fair, Thursday’s $25 billion 30-year Treasury auction retired a bond issued in 1995 with a 7.625% coupon with an expected coupon rate of 4.823%, so it's not all bad news. But as the debt load continues to grow, interest payments will take on an even larger share of federal outlays over the next few decades (The Congressional Budget Office expects interest payments to be 25% of federal outlays in 2050 vs. 13% today). The next few months will be filled with rhetoric about debt ceilings and (potential) government shutdowns, but the U.S. government will not default on its debt.
Commodities and Currencies: The Bloomberg Commodities Index ended higher this week, marking another weekly gain for the broader commodities complex. West Texas Intermediate crude oil ended slightly lower after erasing weekly gains. Downward pressure on oil prices stemmed from the fourth consecutive weekly rise in U.S. inventories, concerns of a ceasefire in the Russia-Ukraine war easing supply disruptions, as well as ongoing tariff threats. Gold moved higher, extending its unrelenting climb. Inflation jitters and trade concerns continued to support the yellow metal via safe haven trading, while some attention was placed on a rapid increase in physical gold heading to U.S. warehouses. However, weekly gains for the bullion were trimmed on Friday as traders banked profits. In currencies, the dollar consistently weakened over the last five days due to delayed tariff implementation and as rate cut bets moved back up on the calendar.
Economic Weekly Roundup
Bad Month for Auto Dealers. Retail sales in January declined 0.9% as consumers retrenched after a very strong holiday season. The decline in sales foreshadows a likely downshift in overall growth in Q1. Non-store sales — a proxy of price sensitivity — fell close to 2%, the biggest monthly decline since mid-2021. 10-year yields came off the highs from earlier this week as investors reset inflation and policy expectations. Investors should expect PCE inflation to decelerate to 2.6% when it is released on the 28th. On the fiscal policy front, investors should not forget the impact from the Department of Government Efficiency (DOGE), especially as it relates to the Consumer Financial Protection Bureau (CFPB). Created from the Dodd-Frank Act and controversial from its inception, the CFPB is funded by what the private sector would call the retained earnings of the Fed. And for a few years now, the Fed did not have the money to pay the CFPB. However, other agencies and regulators are still providing the oversight necessary to encourage safe and healthy financial services.
Consumer Prices Impacted by Bird Flu. Annual inflation accelerated up to 3.0% in January from 2.9% in the December reading. Shelter costs rose 0.4% in January, accounting for nearly a third of the headline increase, plus energy prices rose 1.1% over the month from the rise in gas prices. Bird flu was a major factor in hotter food inflation, causing egg prices to rise 15.2%, the largest increase in roughly a decade and pushing annual prices up 53%. Large numbers of underinsured and uninsured drivers have impacted the auto insurance market. The motor vehicle insurance index rose 2.0% in January with little signs of easing. The demand for travel placed upside pressure on travel costs, including airfares, hotel prices, and rental vehicles. The number of travelers passing through TSA checkpoints in January was higher than January 2019 by about 200 million.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: Presidents’ Day holiday; no economic releases scheduled
Tuesday: Empire Manufacturing (Feb), NAHM Housing Market Index (Feb), Net Long-Term TIC Flows (Dec), Total Net TIC Flows (Dec)
Wednesday: MBA Mortgage Applications (Feb 14), Housing Starts (Jan), Building Permits (Jan preliminary), New York Fed Services Business Activity (Feb), FOMC Meeting Minutes (Jan 29)
Thursday: Philadelphia Fed Business Outlook (Feb), Initial Jobless Claims (Feb 15), Continuing Claims (Feb 8), Leading Index (Jan)
Friday: S&P Global U.S. Manufactuing PMI (Feb preliminary), S&P Global U.S. Services PMI (Feb preliminary), S&P Global U.S. Composite PMI (Feb preliminary), University of Michigan Consumer Sentiment Survey (Feb final), Existing Home Sales (Jan)
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