Markets Blog
David Matzko, LPL Research
LPL Research provides its Weekly Market Performance for the week of February 24, 2025. Domestic equities ended the week in the red amid a flurry of corporate and economic headlines in a big week of earnings and data. European markets ended mostly higher, lifting the broader region to fresh records mid-week, while Asian stocks ended firmly lower following renewed U.S. tariff threats. Treasury yields ended the week lower, reversing their move higher over the last few weeks. Commodities ended lower as a stronger dollar weighed on the broader commodities complex.
Index Performance
U.S. and International Equities
U.S. Equities: Major averages ended mostly lower to conclude a relatively choppy week for capital markets. The S&P 500 and Nasdaq declined despite stocks attempting to trim weekly losses on Friday. But, after a several days of weak afternoon trading, month-end dynamics lifted the Dow above the flatline.
The biggest event of the week was artificial intelligence (AI) bellwether NVIDIA’s (NVDA) fourth quarter earnings results following Wednesday’s close. The chipmaker topped forecasts, but Wall Street broadly interpreted the results as “good, but not great,” lacking the upside delivered in recent quarters. The results weighed on mega-cap stocks after the secular AI growth theme was already brought to focus earlier in the week with Meta (META) reportedly mulling over a $200 billion AI investment while Microsoft (MSFT) reportedly pulled out of a notable amount of data center leases. Nonetheless, earnings takeaways across the S&P 500 were broadly positive, highlighted by Inuit (INTU), Workday (WDAY), and Lowe’s (LOW).
Adding to the risk-off tone to close February was the latest bout of policy uncertainty and economic growth concerns. Sentiment was dented after President Donald Trump stated he will proceed with 25% levies on goods from Canada and Mexico next week (after hinting at a delay earlier in the week). The administration also threatened an additional 10% levy on all Chinese products. Further, stocks were weighed down as soft- or no-landing scrutiny and stagflation jitters circulated through markets after consumer confidence fell the most since August 2021. Although concerns were held at bay and rate cut bets received a lift after positive gross domestic product (GDP) and core personal consumption expenditures (PCE) inflation data in the latter half of the week.
International Equities: The broader European region logged another weekly gain, measured by a 0.6% weekly gain for the STOXX 600 in euros, extending a strong start to the year. Germany outperformed in a post-election rally after conservative party leader and election victor Friedrich Merz stated plans to quickly establish a coalition, also stating Germany’s main parties could reach a deal to reform the country’s debt brake. A sixth-month high for consumer inflation was overshadowed by strong corporate results which continued to prop up market sentiment and propel the region to fresh all-time highs again this week.
Meanwhile, Asian markets ended in the red after widespread selling in Friday’s session. Equities sold off following threats of additional U.S. tariffs, paring weekly gains and dragging major indexes below the flatline. Tariff headlines hit already fragile sentiment after President Trump signed a memorandum to restrict Chinese investment in strategic areas such as technology and energy earlier this week. Hong Kong and mainland China ended lower after the recent rally in tech shares took a breather, despite a mid-week surge, and the People’s Bank of China (PBOC) held rates unchanged and continued to withdraw liquidity. The tech-leaning markets of Japan, Taiwan, and South Korea all closed lower, as did Southeast Asia.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg U.S. Aggregate Index traded higher this week. The rate-sensitive two-year Treasury yield ended 16 basis points (0.16%) lower, and the 10-year yield ended 12 basis points (0.12%) lower.
The decline in yields, particularly for longer-maturity Treasuries, has roughly been a reversal of the reasons yields moved higher originally: concerns around slowing growth, a fall in the Treasury term premium and momentum from unwinding short positions. Also helping the fall in yields has been the Treasury Department’s inability to issue more Treasury debt due to debt ceiling restrictions. That said, for further declines, particularly for the 10-year Treasury yield, markets will need to continue to price in additional rate cuts — something that may not align with current Fed expectations. Markets have fully priced in two rate cuts this year, in line with projections outlined in the most recent dot-plot. So, to get Treasury yields meaningfully lower than current levels, the temporary growth scare that’s partially driven yields lower will likely need to turn into something greater than temporary, causing the Fed to be more aggressive with rate cuts.
In other bond market news, the Treasury Department auctioned off $183 billion (total) in 2-, 5- and 7-year Treasury securities with a pretty impressive turnout. Despite yields that are lower than the recent January highs, Treasury auctions, particularly among price-sensitive buyers, were very well received. Participation from indirect buyers — non-U.S. investors, U.S. households and hedge funds primarily — was elevated, resulting in very little issuance remaining for primary dealers to absorb. Moreover, all three auctions ended up clearing below market expectations, reflecting more demand than anticipated. A larger test for Treasury demand, particularly at the 10-year and 30-year tenors, won’t take place until the middle of March. But this week’s results are about as good as can be expected, all things considered.
Commodities and Currencies: The Bloomberg Commodities Index ended the week sharply lower. West Texas Intermediate (WTI) and energy prices were broadly weighed down by a stronger U.S. dollar, as well as the latest wave of tariff threats. While tariffs may spark a trade spat that would be bullish for crude import prices, oil is undercut by the Iraqi agreement to resume exports to Turkey and thawing Russian-U.S. relations. Gold prices pulled back from their seemingly unrelenting climb, logging their worst week in three months on downward pressure from a stronger dollar and well-received economic data. The dollar climbed from 11-week lows, supported by tariff risk, after relatively rangebound trading in the first half of the week.
Economic Weekly Roundup
Inflation Decelerated in January. The Core PCE deflator, the Fed’s preferred inflation metric, decelerated to 2.6% in January from a revised 2.9% in December. Investors should take this in stride. Inflation decelerated as consumer demand softened in January. Real spending fell 0.5% after a robust holiday season, in part due to severe winter weather. The savings rate rose to 4.6%, the highest since mid-2024 as consumers tempered their views on the economy. Real disposable income grew 0.6%, much softer than the last two January prints. This is likely due to slower wage growth.
Softer consumer spending and slower income growth should catch the Fed’s attention. Despite the deceleration in the annual pace of inflation, the monthly rate is still running hotter than the Fed would like. Investors will continue to focus on the uncertain growth trajectory as real spending unexpectedly fell in January from weaker consumer demand. The odds are rising that the Fed’s next rate cut will be in June. Whether the next cut happens then or in July is less relevant than the number of cuts by the end of the year. The current macro backdrop suggests only two cuts in total this year but more in 2026.
Surprise Dip in Confidence. Consumer confidence for February fell to 98.3, the lowest since June and mostly due to the “Expectations” component. A mixed bag here. Consumers’ views on the current situation are rosy, remaining above 130 although still below pre-pandemic levels. The “Expectations” component fell for the third consecutive month, approaching the near-term low of April 2024 from weak economic data. Somewhat surprisingly, an increasing number of consumers plan to buy a home in the next six months as consumers expect mortgage rates to fall this year. The labor differential – those reporting jobs plentiful minus jobs hard to get – deteriorated in February as the labor market seems softer to consumers. The unemployment rate should rise in the coming months.
We should expect some short-term behavioral shifts within the consumer. Consumers are increasingly nervous about the unknown impacts from potential tariffs and could pull forward consumer demand as they anticipate higher prices for imports in the near future. One note of caution: consumer surveys are much more volatile than the hard data of retail sales so the Fed will not likely change their stance on monetary policy at the next couple of meetings.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: S&P Global U.S. Manufacturing PMI (Feb final), Construction Spending (Jan), ISM Manufacturing, Prices Paid, New Orders, and Employment (Feb), Wards Total Vehicle Sales (Feb)
Tuesday: No economic releases scheduled
Wednesday: MBA Mortgage Applications (Feb 28), ADP Employment Change (Feb), S&P Global U.S. Services and Composite PMI (Feb final), Factory Orders (Jan), Durable Goods Orders (Jan final), Capital Goods Orders and Shipments (Jan final), ISM Services Index (Feb), Federal Reserve Releases Beige Book
Thursday: Challenger Job Cuts (Feb), Trade Balance (Jan), Nonfarm Productivity (4Q final), Unit Labor Costs (4Q final), Initial Jobless Claims (Mar 1), Continuing Claims (Feb 22), Wholesale Trade Sales (Jan), Wholesale Inventories (Jan final)
Friday: Change in Nonfarm Payrolls (Feb), Two-Month Payroll Net Revision (Feb), Change in Private Payrolls (Feb), Change in Manufacturing Payrolls (Feb), Average Hourly Earnings (Feb), Average Weekly Hours All Employees (Feb), Unemployment Rate (Feb), Labor Force Participation Rate (Feb), Underemployment Rate (Feb), Consumer Credit (Jan)
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