Market Insights Recap — Week of March 3, 2025
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Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank.
The current narrative on Wall Street is another growth scare. Consumer sentiment numbers coming in weaker over the last few weeks. Income and spending in January were a little lower than expected. Last week's report on the January trade balance showed a sharp increase in imports. In a repeat of 2022, this report dropped the Atlanta Fed's GDP measure for the first quarter into negative territory. Remember, these are just January numbers. February Johnson Redbook consumer spending showed that consumers bounced back last month. Is the long-awaited recession finally here? Nope. You must continue to enjoy a second-gear economy until further notice.
The key to the sentiment decline and that jump in imports is the looming specter of tariffs. Trump's latest date change is now March 4 for new 25% tariffs on Mexico and Canada, and an additional 10% tax on Chinese imports. Now, what did not bounce back in February was the stock market. After starting the year solidly in the green, U.S. stocks have struggled after Valentine's Day. Again, we point the finger at tariffs, geopolitical uncertainty and D.C. drama.
NVIDIA wrapped up the main part of earnings season. 97% of the S&P 500 members have reported their fourth quarter earnings. 75% of those folks beat their earnings estimates. That's about average. Growth and earnings was another story, rising 18.2%, according to FactSet. That's the fastest we've seen since the shutdown rebound of 2021. That fine finish to 24 brings the S&P 500's full-year earnings growth up to 10.5%. An important point is that the earnings in 2022 and 23 were dominated by tech in the Magnificent Seven. Now, earnings growth is spread across almost every sector.
Reviewing February's action, S&P 500, Nasdaq, SmallCap, all those stocks fell between 3 and 6%. The outlier was that Magnificent Seven group. As a group, they more than doubled in the last five years since shutdowns. But last month they gave back nearly 11%. Tesla threw on the brakes, sliding to a correction by dropping 28%. Google searched for reasons why it slipped 17%. One interesting note: Berkshire Hathaway hit an all-time high last Friday, fresh off of paying $27 billion in taxes for selling a portion of its stake in Apple. Chart-wise, some technical damage here and there, But a 3 to 6% pullback across the board is normal. And with an economy performing better than sentiment and news headlines suggest, we agree with our market instruments telling us to fly straight and steady.
No change in our view that the fed is on hold. No rate change anytime soon. Tariff uncertainty has driven bond yields lower for the last five weeks. That flight to quality will stick around until D.C. drama subsides. Our view is that rates are going to drift higher in the middle of the year, when borrowing and spending begins again in earnest. Cost cutting in the federal government will largely depend on congress and its budget games. Remember, five of the last six presidents have had some sort of DOGE cost cutting effort, and congress really hasn't cut spending at all.
Looking ahead this week, it's jobs week, factory orders, manufacturing surveys. They're going to get some attention early on. Friday's nonfarm payrolls for January come in around 160,000. Unemployment is going to hold steady at 4%. That should encourage traders that the economy is not slowing appreciably.
In summary, import numbers show a big jump as companies prepare for possible tariffs. That's a subtraction to the GDP calculation. We saw the same effect in the first quarter of 2022, negative headline growth due to imports, but the rest of the economy doing fine. Traders are finally taking the tariff threats as real, and they've marked down stocks a little bit. Pullback underway in the short term. Medium term, largely friendless, long-term bull firmly intact. Good earnings season is over. Wall Street turns its attention to a possible government shutdown on March 14. Thanks for tuning in; 'til next time.