February 8, 2025 Market Update

Notwithstanding a number of potentially significant market-moving headlines, the markets remained largely unchanged this past week.  The Dow and the tech-heavy Nasdaq each declined by approximately 0.50%, while the S&P 500 Index saw a more modest drop of 0.24%.  The Russell 2000 Index, which tracks small-cap U.S. stocks, also ended the week slightly lower, down by 0.35%.

In response to the news, U.S. bond markets experienced some mid-week volatility, which subsided as the week progressed.  The 10-year Treasury yield fell by 8 basis points whereas, the aggregate U.S. bond market, as measured by the Vanguard Total Bond Market ETF, continued its upward trend, posting a 0.33% gain for the week.

The week began with renewed trade tensions as the Trump administration announced a new round of tariffs targeting imports from Canada, Mexico, and China.  Markets initially reacted negatively to the news, but sentiment improved following agreements to suspend tariffs on Mexico and Canada for a month to allow for further negotiations.  Investors breathed a sigh of relief following the tariff suspension, with industrials, consumer discretionary, and tech stocks rebounding following the announcement.  

As of this writing, a new 10% tariff on Chinese imports, remains in place.  In response, China imposed a 15% tariff on U.S. coal and liquefied natural gas, and a 10% tariff on crude oil, agricultural machinery, and large-engine vehicles.  These tariffs are set to take effect on Monday.  China also announced export controls on critical minerals, including tungsten, which are essential for electronics, military equipment, and solar panels. 

Tariffs can protect domestic industries, serve as leverage in trade negotiations, and be effective bargaining chips when negotiating with trading partners on geopolitical concerns.  But they often come at a cost—raising prices for consumers and businesses, disrupting supply chains, and increasing geopolitical tensions.  The effectiveness of tariffs ultimately depends on whether they lead to favorable agreements or merely escalate economic conflicts.

Mr. Market is still digesting the full implications of the Trump Administration’s evolving tariff policies.  If trade partners retaliate with steep retaliatory tariffs of their own, U.S. economic growth may slow, and stock and bond market volatility may rise.  We will continue to monitor policy developments and corporate earnings reports for early signs of how these trade tensions may impact financial markets.

Next week, we will be keeping an eye on releases of key economic data, including CPI (Feb. 12), PPI (Feb. 13), and import/export price indexes (Feb. 14), along with major earnings reports, all of which could shape market sentiment amid ongoing trade policy shifts.

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