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Weekly Economic Update - 2-03-2025

2/3/2025 brad

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Economic Update 2-03-2025

  • Economic news for the week included the FOMC keeping short-term interest rates unchanged, while U.S. GDP for Q4 came in above-trend but below the prior quarter, and personal income/spending positive. Gains in new home sales accompanied continued positivity for home prices. Durable goods and consumer sentiment fell back.
  • Equities were mixed globally last week, with most regions down, although a few countries bucked the trend. Bonds were up slightly, as interest rates ticked down. Commodities were also mixed, related to uncertainty over upcoming tariff policy and a strong U.S. dollar.

U.S. stocks started off poorly on Monday along with the news from DeepSeek, noted earlier, although some of the surprise faded later in the week as markets absorbed the news as being perhaps less earth-shattering as it first appeared. By Friday, concerns over North American tariffs, also noted earlier, pulled down sentiment. Sectors were mixed for the unusual week, with gains in communications, health care, consumer staples, and financials; energy and technology each fell by 3-5%, due to different drivers. Real estate was down slightly, with little change in interest rates. Earnings reports from several technology firms appeared to offer mixed results, with much of the corporate discussion focused on the promise of AI as opposed to current earnings trends. In one of the bigger weeks for U.S. company earnings, per FactSet, just over a third of S&P 500 companies have now reported for Q4. Over three-quarters of these have noted a positive earnings surprise, and over 60% a positive revenue surprise, with the blended earnings growth rate having improved to 13.2% (which would be the best quarter since 2021 if it holds out).

Foreign stocks were mixed, with gains of a percent in the U.K. offset by declines in Europe, Japan, and emerging markets—despite a rise in the value of the U.S. dollar generally. Earnings results were decent, and the European Central Bank cut interest rates by -0.25% due to subdued economic growth, as did the Bank of Sweden, and Bank of Canada, with the latter largely due to the fear of U.S. tariffs. In EM, the Brazilian central bank raised rates by 1.00%, to combat ongoing inflation, which prompted a 4% rise in stocks. Chinese stocks also gained (at least in offshore terms, as the bulk of domestic markets were closed for the Lunar New Year), offsetting declines in Mexico and South Korea, with a variety of influences such as tariffs for the former and AI-related concerns as noted earlier for the latter. As markets are quick to adjust to new realities, a typical reaction to tariffs is currency devaluation to one degree or another, which can at least partially offset the impact of the new higher costs of those exports.

Bonds were slightly higher as interest rates across the U.S. Treasury yield curve fell back just slightly. Traditional governments and investment-grade corporates gained, while high yield and floating rate were little changed. Foreign bonds were mixed, as the U.S. dollar rose about a percent.

Commodities were mixed to lower for the week, with gains in precious metals and agriculture offsetting declines in energy and industrial metals, much of which was due to concerns over the net currency-translated impact of tariffs and the strengthening of the dollar. Crude oil prices fell by -3% last week to $74/barrel.

Period ending 1/31/2025

1 Week %

YTD %

DJIA

0.27

4.78

S&P 500

-0.99

2.78

NASDAQ

-1.63

1.66

Russell 2000

-0.86

2.62

MSCI-EAFE

0.80

5.26

MSCI-EM

0.32

1.79

Bloomberg U.S. Aggregate

0.44

0.53

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2024

4.37

4.25

4.38

4.58

4.78

1/24/2025

4.35

4.27

4.43

4.63

4.85

1/31/2025

4.31

4.22

4.36

4.58

4.83

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.