February 15, 2025 Market Update

Markets remained volatile last week as investors assessed troubling economic data, worsening interest rate expectations, and escalating trade tensions. Yet, Mr. Market took the news in stride, with the S&P 500 and Nasdaq approaching record highs, driven in part by strong corporate earnings and resilient consumer spending.

Meanwhile, bond yields climbed as hotter-than-expected inflation data fueled concerns that the Fed might delay its next rate cut. Bond prices fell in response, with longer-term bonds bearing the brunt of the decline. The iShares 20+ Year Treasury Bond ETF (TLT) dropped more than 1% after Wednesday’s inflation report but recovered to finish the week down just 0.12%.

Federal Reserve Chairman William Powell indicated on Tuesday that the Fed does not expect to lower interest rates further any time soon.  “We’re in a pretty good place with this economy.  We want to make more progress on inflation.  And we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further,” he said during his biannual testimony before Congress. 

Those comments preceded the release of January’s Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday.  The former, which estimates changes in what consumers pay for goods and services, increased by 0.5% from December 2024, leading to an annual inflation rate of 3.0%, up from 2.9% in December.  While the increase exceeded expectations, January's CPI numbers tend to be more heavily influenced by seasonal adjustments than those of most other months.  Moreover, so-called SuperCore inflation, which excludes shelter costs from core services and is the Fed’s preferred inflation gauge, edged lower year-over-year from 4.17% in December to 4.16% in January.

Meanwhile, the Producer Price Index (PPI), which measures the overall change in wholesale prices received by producers for their goods and services, rose by 0.4% in January, exceeding economists' expectations for a 0.3% gain.  Over the past 12 months, wholesale inflation climbed to 3.5%, marking the highest rate in nearly two years.

Taken together, the data suggests that while inflation remains a concern, it does not pose an immediate threat to the health of the U.S. economy.

That’s all for now.  Have a great weekend and invest wisely my friends.