Market Update – February 18th, 2025

Financial Markets

Markets posted gains last week despite hotter-than-expected inflation data and weaker retail sales figures, as investors were calmed by the apparent delay of additional “reciprocal” tariffs. As of the close on Friday, February 14th, the Nasdaq Composite rose 2.58%, the S&P 500 gained 1.47%, and the Dow Jones Industrial Average edged up 0.55% for the week. Bonds saw minor gains, with the Barclays Aggregate Bond Index up 0.23% last week.

Source: Zacks

Market News

January CPI

The first inflation metric of the new year came in hotter than expected, with annual headline inflation rising to 3.0% and core inflation reaching 3.3%. On a monthly basis, headline prices increased by 0.5%, while core prices saw an increase of 0.4%.

By category, grocery prices increased by 0.5% in January, marking a relatively large one-month jump. This was largely driven by a sharp rise in egg prices, which surged over 15% in a single month due to the avian flu, the highest monthly inflation rate for eggs since June of 2015. Energy prices rose by 1.1% during the month and increased by 1% year-over-year. Shelter inflation, while still persistent, has been moderating, with prices up 4.4% compared to a year ago.

Transportation services experienced elevated inflation, with prices rising by 1.8% for the month and 8% year-over-year. New vehicle prices declined by -0.3% from last year, while used vehicle prices increased by 1%. As a whole, this month’s CPI report was a reminder that the Federal Reserve’s fight against inflation is not yet done, and they may need to maintain rates higher for longer.

Source: Bureau of Labor Statistics

January PPI

In addition to the CPI, the Producer Price Index also came in hotter than expected, indicating continued inflationary pressures. Headline wholesale prices rose 3.5% year-over-year, while core prices increased by 3.4%. On a monthly basis, headline prices climbed 0.4%, with core prices rising 0.3%.

Higher energy costs, which rose 1.7% in January, along with a 1.1% increase in food prices, contributed to the stronger-than-expected inflation reading. While much of this may be driven by volatile categories that could stabilize, rising producer prices could still lead to higher consumer inflation as businesses pass on increased costs to protect their margins.

Source: Bureau of Labor Statistics

Retail Sales

Retail sales fell more than expected in January, declining by -0.9% for the month. On an annual basis, sales continued to grow at a healthy pace, rising 4.2% from a year ago, outpacing inflation. One of the largest drags on monthly sales growth was a nearly -3% decline in auto sales, despite auto sales rising 6.4% compared to January 2024.

December retail sales were also revised higher, which may have contributed to January’s pullback. It’s unclear whether this signals a broader slowdown or just a post-holiday adjustment, and more data will be needed to determine the overall trend in consumer spending.

Source: US Census Bureau

Anxious Index

The Anxious Index, a survey of professional forecasters measuring the probability of real GDP declining in the next quarter, continues to signal economic stability ahead. A reading above 40% typically signals a potential recession, but the latest data shows the probability has dropped to 15.4%, suggesting an optimistic outlook for the coming quarter.

Other updates from the quarterly survey included an upward revision of 2025 real annual GDP growth to 2.4%, a lower projected unemployment rate of 4.2%, and higher expected payroll growth, with an average of 145,000 new jobs added per month.

Source: Federal Reserve Bank of Philadelphia

Summary

Stocks climbed last week despite hotter-than-expected inflation and softer retail sales, as investors took comfort in the apparent delay of additional tariffs. January CPI and PPI data reinforced concerns about persistent inflation, particularly in food and energy, raising expectations that the Fed may keep rates higher for longer. Finally, the Anxious Index showed improved economic forecasts, with recession fears easing and growth forecasts for 2025 higher than they were three months ago.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

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