The Week in Review: 2/18/25

“Never let the fear of striking out keep you from playing the game.” — Babe Ruth

Good Morning,

The major equity indices again logged gains last week.

Upside moves were supported by solid buying in the mega cap space, more of the same leadership that has been so impressive.

The market-cap weighted S&P 500 jumped 1.5% versus a 0.5% gain in the equal-cap weighted S&P 500. As the mega caps did the heavy lifting.

The outperformance of mega cap shares was also apparent in S&P 500 sector performance. The information technology sector was the top performer by a decent margin, jumping 3.8%, followed by communication services (+2.0%). Both of which contain mega cap constituents.

Market participants were dealing with a lot of economic data, news about tariffs, and commentary from Fed Chair Powell.

Fed Chair Powell's semiannual testimony before Congress was last week and didn't feature any big surprises. He again said that there is no hurry to adjust the policy stance, repeating comments made at the conclusion of the January FOMC policy meeting.

On the tariff front, President Trump imposed 25% tariffs on steel and aluminum, which will go into effect on March 12 with Australia potentially receiving an exemption.

Also, President Trump's reciprocal tariff plan was seen as less economically provocative as feared. To wit, the tariffs won't be applied until April 1 at the earliest, and at that time will be applied on a case-by-case basis.

Economic releases last week were mixed…

• The New York Fed's January Survey of Consumer Expectations showed one-year ahead inflation expectations unchanged at 3.0% (versus Friday's release of the February Univ. of Michigan Consumer Sentiment Index, which showed year-ahead inflation expectations surging from 3.3% to 4.3%).
• Total CPI was up 0.5% month-over-month and 3.0% year-over-year (versus 2.9% in December) while core CPI, which excludes food and energy, was up 0.4% month-over-month and 3.3% year-over-year (versus 3.2% in December), which created more angst about inflation not making it back to the Fed's 2.0% target and the Fed itself not making its way back to cutting rates anytime soon.
• The January PPI report was greeted with some relief on the basis that it should help keep the PCE Price Index (the Fed's preferred inflation gauge) in check after various components in the PPI report, like airfares and physician care, showed month-over-month declines.
• The retail sales report for January was noticeably weak and the industrial production report for January showed growth without any help from manufacturing or mining output (i.e., cold weather drove a spike in the output of utilities, which was cranking to meet demand for heat).

Treasuries settled with modest gains. The 10-yr yield was one basis point lower than the previous Friday at 4.48% and the 2-yr yield dropped three basis points last week to 4.26%.

The unofficial end to 4Q24 earnings season will culminate with Walmart reporting. Thursday. What will be telling is any input from management on tariffs and pricing strategies.

Overall 4Q24 S&P 500 earnings were on track to rise 17%YoY, beating street estimates of 11.6%. The best quarter since 4Q21.

Have wonderful week!

Michael D. Hilger, CEP^®
Managing Director
Senior Vice President, Wealth Management

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