Market Update – February 24th, 2025

Financial Markets

Markets cooled off last week as investors focused on weak guidance from Walmart and growing concerns about a potential slowdown. The Dow Jones Industrial Average and Nasdaq Composite both fell by -2.5%, while the S&P 500 fell -1.66%. In contrast, the Barclays Aggregate Bond Index rose 0.33% as investors moved into risk-off assets. Looking ahead, this week will be guided by Nvidia’s earnings, consumer confidence data, and the PCE inflation report, which could provide further direction for the markets.

Source: Zacks

Market News

Leading Indicators

The Conference Board’s Leading Economic Index (LEI) declined by -0.3% in January, continuing its downward trend since 2022. Over the six-month period ending in January 2025, the LEI fell by -0.9%, a smaller decline than the -1.7% drop seen in the previous six months. While the LEI still signals a bearish outlook, it suggests that downside risks are moderating, and the LEI is no longer indicating a recession.

Source: The Conference Board

Within the LEI, two negative and two positive components were the primary drivers of the index’s movement in January. On the negative side, average weekly manufacturing hours saw the largest drop, falling by -0.18 points while consumer expectations for business conditions weakened, decreasing by -0.1 points for the month.

On the positive side, the de-inverting yield curve contributed 0.04 points to the index, while average weekly initial jobless claims also improved slightly, rising by 0.04 points in January. These positive factors helped offset some of the broader weaknesses in leading indicators. Overall, the LEI continues to signal a slowdown, however, the decline appears less severe than it did a year ago.

Source: The Conference Board

Existing Home Sales

Existing home sales declined by -4.9% in January but remained 2% higher than in January 2024. The median price of a home sold in January reached $396,900, marking a 4.8% increase from the previous year and set a new record high sales price for the month of January.

Housing inventory rose to 3.5 months’ worth, indicating slightly more supply in the market. Despite high interest rates and elevated prices, the continued rise in home prices suggests underlying strength and sustained demand for homeownership.

Source: National Association of Realtors

Walmart Issues Soft Guidance

Walmart reported strong fourth-quarter earnings last week, surpassing analysts’ expectations on both the top and bottom lines. Same-store sales rose by 4.6% year-over-year in the fourth quarter, signaling steady performance.

However, the earnings beat was overshadowed by negative forward guidance, as the company announced that its profit growth would slow in the current fiscal year. Walmart also mentioned tariffs during its earnings call, noting that additional tariffs were not accounted for in their forward guidance. This presents a potential risk if tariffs were to drive up their costs.

As the nation’s leading grocer, Walmart is often seen as a barometer of consumer health, making the softer-than-expected forward guidance particularly notable. The news contributed to a sharp drop in Walmart’s stock price, which fell as much as -10% last week.

Source: Morningstar

Q4 Earnings

With nearly 90% of the S&P 500 companies having reported their Q4 earnings, the overall results appear broadly positive. The S&P 500 is expected to show earnings growth of 17.6%, factoring in both actual results and the expected results of companies yet to report.

Sectors such as financials, consumer discretionary, communication services, and near cyclicals posted the strongest year-over-year earnings growth. On the other hand, energy was the only sector to report negative earnings growth. Despite some choppier results from individual companies, like Walmart, overall Q4 earnings have exceeded expectations.

Source: Fundstrat, FactSet

Summary

Markets cooled down last week as weak guidance from Walmart heightened concerns about a potential slowdown. The Conference Board’s Leading Economic Index continued its decline, but suggested downside risks are moderating, while existing home sales showed record-high prices for the month of January. Meanwhile, Q4 earnings remained broadly positive, with the S&P 500 expected to post 16.7% earnings growth, despite Walmart’s cautious outlook weighing on sentiment.

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