Market Pullback Over?
Last week ending, most major stock averages retreated, except the Dow. Even with Friday’s market rally, the S&P 500 ended the week off (2.03%), the Nasdaq (4.36%), and the Russell 2000 (2.28%). The Dow inked out a .18% gain.
Over the pond, foreign stocks pulled back (.47%) and emerging markets (4.15%).
With 2 months of 2025 now in the books, we have a mixed picture:
- Dow Jones: +2.26%
- S&P 500: +0.16%
- NASDAQ Composite: (3.30%)
- Russell 2000: (3.81%)
- Foreign Stocks Index: 7.33%
- Emerging Markets Index: 2.91%
Bonds, measured by the Bloomberg US Aggregate index are higher by 2.34% for 2025.
What drove the markets lower last week? In my opinion, it’s the unexpected consequences of the changes taking place in our government, which may be impacting consumer attitudes, at least for the time being. It may also be reflective of investors selling in the technology sector, realizing profits from its outperformance over the last 2 years.
Over the last couple of weeks reports for Consumer Sentiment and Consumer Confidence have dropped. The concern is, will consumers pull back on spending?
Previously announced, January’s spending fell .5%. This may have been the reason for last Friday’s tamer than expected Core Personal Consumption Expenditures Index (PCE) coming in at 2.6%. Keep in mind, the Fed still believes that 2% inflation is the preferrable target. If lower consumer spending is the short-term reason for inflation dropping, the longer-term solution may remain evasive.
Is last week’s market pullback now over? In the short run, much will depend on what we hear from our government this week on Tariffs, government job layoffs, Ukraine, etc.
An important number is coming this Friday, when the February Jobs Report will be announced. A smaller than expected number of new jobs created could move the markets in either direction. The interpretation may be the Fed is more apt to lower rates sooner than later, or the worry of consumer sentiment may rise further as more people become a bit nervous.
Also, important this week, we will hear earning reports from Best Buy, Macy’s, Costco, Gap, Kroger, and Burlington Stores. This may shed light on the current attitude of the consumer.
It’s a good time to tighten your seat belts a little, however not a time to panic.
Trade Deficit
Do we really purchase a ton of goods from overseas? Well, the answer for 2024 was an absolute yes!!
According to the Wall Street Journal, last year we imported $1.2 trillion more in goods than we exported, a record. This is one rationale the Trump administration is using to justify the use of tariffs.
One area I cannot disagree; we simply need to make more “stuff” here in the good old United States of America. The challenge? We’ve sent significant product manufacturing overseas, it’s hard to get it back. Cheaper labor, lower taxes, political ties and more all contribute to manufacturing staying abroad.
How many countries does it really take to make the parts for your automobile?
Last October I purchased a 2025 BMW SUV. With the nice weather I did not realize until December, the heat did not work. The dealership informed me BMW is not yet making many new replacement parts, and I would have to wait. I finally pushed and they are replacing my new SUV with another brand-new SUV. It was faster to order a new vehicle than to wait for the part! I wonder if the part was made in the US, if that would have happened?
Thank you for reading!!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
