Weekend Update, February 17th, 2025
Index, Sector & Asset Performance
The stock and bond markets in the US are closed today for Presidents Day holiday.
The S&P 500 ended its normal seasonal week early February, two-week down skid, finishing the week up +1.5%, at 6114, and a handful of points from a new ATH last made on December 6th. Lagging sectors YTD, technology (+3.8%) and communication services (2%), led the week’s gains while healthcare (-1%) lagged.
The S&P 500 is up +4.2% year-to-date, while the equal weight S&P 500 is up +3.5% year-to-date. This is happening while breadth improves, and large cap-technology stocks lag year to date.
U.S. Treasury yields rallied and close on the 10-year note at 4.47% and the 2-year note at 4.26%. Higher inflation expectations are being offset by lower real growth expectations as yields drop.
Tariff threats continued this week, with the attention turning to reciprocal tariffs in play on all U.S. trading partners where there is deemed to be a tariff or trade barrier on the U.S. The Administration will study these relationships and report by April 1st.
In the bond markets, the concerns are a trade off from slower growth in 1h25 and higher inflation caused by tariffs. Market and consumer long-term inflation expectations have inched up in 2025. The 10-year Treasury yield ended at 4.50%, down modestly on the week. The 2-year Treasury yield remains range-bound as markets continue to price between one and two rate cuts in 2025. Real interest rates continue to trend lower on slowing economic growth.
Economic Indicators and Earnings Commentary
Fed minutes on Wednesday afternoon will be the economic highlight of the week. The jobless claims will be reported on Thursday and Friday’s existing home sales report.
January’s U.S. inflation report revealed a higher-than-expected CPI of 3.0% and core CPI of 3.3%, impacting Federal Reserve rate cut expectations. Remember that inflation readings tend to be seasonal in nature. Early-year pricing effect on CPI should taper by March and then go lower through the summer. Core PCE measures are calmer and the Fed’s preferred gauge of inflation.
Retail sales were weaker than expected leading to a bond market rally on Friday. Total retail spending was down a worse-than-expected -0.9% in the month and core sales excluding autos, gas and building materials were down -0.5%.
Over 75% of the S&P 500 have now reported earnings. According to Goldman Sachs, 2025 estimates for capex spending were revised up by +5% over the last quarter for the S&P 500. However, capex spending was only revised up by +2% for companies with broad exposure to tariffs and was revised down by -1% for companies with exposure to foreign retaliation. Discussions about AI rose to new
highs with almost 50% of larger S&P 500 companies mentioning the subject amid reports that Deep Seek obtained similar AI model performance at a fraction of the cost of existing models. Last quarter, the S&P500 delivered EPS growth of +13% year-over-year, above consensus expectations for +8%. This was the strongest growth in over 3 years.
Super Micro Computer (SMCI) rockets +32%, marking the largest percentage increase the overall S&P 500 for the week. The AI server company said it expects to submit its delayed financial reports from fiscal 2024 in time to avoid being delisted. Long maligned, Intel (INTC) shares climbed +24% with comments from VP JD Vance saying that the “most powerful” artificial intelligence systems will be built in the US. In communication services, T-Mobile US (TMUS) shares climbed +10% after it launched its satellite-powered T-Mobile Starlink service in beta mode. In the materials sector, DuPont (DD) shares rose +9.9% as the company posted Q4 adjusted earnings and net sales above analysts’ mean estimate.
This week earnings reports slow down materially however these big names do report: Walmart (WMT), Alibaba Group Holding (BABA), Baidu (BIDU), Booking Holdings (BKNG), Medtronic (MDT), Occidental Petroleum (OXY), and Analog Devices (ADI).
Global Market Trends/Commodities/Currencies
Betting markets are now pricing a 75% chance of a Ukraine/Russia ceasefire.
Oil prices are doing nothing fast at $70-75/bbl. Natural gas prices rebounded and remained elevated as a cold weather has moved across much of the U.S. Coffee prices hit new highs while cocoa prices looked to have finally topped. Grain and lumber prices are moving higher on tariff concerns.
Gold is approaching $3,000/oz.
Bitcoin is bouncing around between $95,000- $97,000.
The calls for “US Exceptionalism” came right on cue in the late 4q24 for a peak in the US dollar and for international stock markets to start outperforming US domestic ones. While the strong dollar in 2h24 are hurting 1h25 earnings expectations, the US Dollar continues top, which would help S&P 500 earnings in the 2nd half of the year. The U.S. dollar has fallen by more than 2% on a weighted basis over the past month.
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