The Week That Was, The Week Ahead: Macro & Markets, February 23, 2025
Stocks closed the week with significant losses, driven by weak economic data and Walmart’s guidance that raised concerns.
- Investor sentiment was shaken by soft economic indicators.
- Walmart’s outlook contributed to heightened uncertainty in the market.
Everything to Know about Macro and Markets
It was another eventful week for the stock market, as major indexes closed in the red. The Dow Jones Industrial Average (DJIA) fell 2.51%, and the S&P 500 (SPX) dropped 1.66%.
- Tech benchmarks like Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) also faced declines of 2.51% and 2.26%.
- Overall, market sentiment reflected growing concerns over economic slowdowns.
The Beginning of a Correction?
The first part of the holiday-shortened week saw the S&P 500 hitting record highs.
- This was followed by a sharp downturn after Walmart’s (WMT) cautious guidance.
- The retail giant projected weaker sales due to uncertainties about consumer behavior and global economic conditions.
Walmart’s fiscal projections triggered a sharp drop in stocks on Thursday, particularly affecting the Dow and consumer-related stocks.
- The market reacted negatively to lower-than-expected sales projections for the ongoing fiscal year.
- On Friday, concerns over UnitedHealth’s (UNH) Medicare billing practices further pressured the markets.
Despite these declines, other major indexes remained relatively stable, buoyed by mega-cap stocks.
- Both Nasdaq indexes reached intraday highs.
- However, profit-taking following concerns about economic growth and elevated valuations pushed all indexes into negative territory by the week’s end.
Market volatility was heightened due to the options expiry that saw about $2.7 trillion in U.S. stock derivatives expire on Friday.
- This contributed to the increased market swings during the week.
Fears of Stagflation Return
Recent economic reports showed signs of weakness, including declines in housing starts, existing home sales, and the housing market index, which hit a five-month low.
- Additionally, U.S. service-sector activity entered contraction, overshadowing the continued strength in manufacturing.
Concerns over the job market have also intensified, particularly with federal layoffs.
- These concerns were sparked by Target’s retail performance, highlighting potential challenges in consumer growth.
- Consumer sentiment fell to its lowest level since November 2023, influenced by rising inflation expectations.
President Trump announced plans for new tariffs on various products, including automobiles, pharmaceuticals, and lumber.
- These tariffs, set at 25%, are scheduled to take effect soon, with transportation and airline stocks suffering.
- Rising policy uncertainty combined with signs of economic weakness added downward pressure on the market.
Federal Reserve’s Stance and Inflationary Pressures
The Federal Reserve remains cautious, with its meeting minutes indicating a readiness to keep rates steady.
- Policymakers expressed concerns about potential inflationary pressures driven by tariffs and strong consumer spending.
- However, the recent soft economic data may prompt the central bank to act, potentially offering monetary support.
Concerns over stagflation, characterized by low growth and high inflation, are becoming more common.
- Weaker-than-expected data could lead to further monetary interventions to help curb inflation.
