“The stock market is a device for transferring money from the impatient to the patient.”
-Warren Buffett
Here’s what you need to know this week:
· Markets fall on renewed tariff threats
· Two key economic reports may bolster markets or add to unease
Tariff Anxiety
Stocks reached a new all-time high last Wednesday before selling off sharply to end the week. The S&P 500 currently sits roughly 2.5% below its all-time high and the more volatile NASDAQ is nearly 5% below its own high watermark. This selloff was driven largely by rising uncertainty surrounding President Trump’s proposed tariff plan.
The first round of proposed tariffs on Mexico and Canada were paused for a month in exchange for concessions on border security. There is one week left until this pause expires and Trump reiterated his plan to institute them unless additional concessions are offered. China was also targeted in the first round of tariffs and opted for retaliatory tariffs rather than negotiation, and Trump did in fact initiate a 10% blanket tariff on China[1].
Europe has also entered the conversation. Trump has threated duties of 25% on European steel and aluminum starting on March 12th unless certain conditions are met (these conditions have not yet been made public). This would impact more than $29 billion of European products which is roughly four times larger than the tariffs Trump placed on Europe during his first term[2]. Europe has responded with a list of its own retaliatory tariffs should Trump decide to implement his plan.
Investors are still torn as to whether these tariffs will materialize or are just a negotiating tactic. However, as the deadlines approach it appears that stocks are beginning to take them more seriously. Consumers are as well: the most recent Consumer Sentiment Survey from the University of Michigan showed a sharp rise in one-year inflation expectations.
As I’ve written many times, higher inflation means fewer interest rate cuts from the Federal Reserve, and a strong surge in inflation may even lead to interest rate hikes. There is still time for negotiations before the tariffs take effect, but the market is noticeably less sanguine than the last few weeks.
Checkup
While we wait for more clarity on tariffs, two economic reports will provide more insight into the state of the economy this Friday. The first is the Personal Consumption Expenditures (PCE) report, which is the Federal Reserve’s preferred measure of inflation. Analysts expect the report to show annualized inflation at 2.5% for the month of January, slightly less than the 2.6% we saw in December[3].
The second is revised Gross Domestic Product (GDP)report for the fourth quarter of 2024, which measures the total output of the US economy. GDP reports are published quarterly but are revised monthly as more economic data is collected. The initial Q4 report on January 30th showed the US economy growing at an annualized rate of 2.3%, less than the 2.7% that analysts expected and also less than the 3.1% annualized rate from Q3[4]. An upwards revision on Friday would likely inject some confidence into the markets, but a flat or downward revision may add to concerns that the economy is slowing. The bull market is not necessarily in danger yet, but slowing growth and tariff-induced inflation are beginning to cast a shadow on the market’s winning streak.
What Else
· Long-time Republican Senate Leader Mitch McConnell announced that he will not seek reelection next year
· The price of gold reached another new all-time high at $2,972 per ounce
· Ceasefire negotiations between Israel and Hamas have stalled as each side argues for more concessions
· Chinese tech stocks have surged on AI advancements, gaining more than 31% so far this year
· Pope Francis has spent the last few days in the hospital due to a respiratory illness and potential kidney failure
· San Antonio Spurs star Victor Wembanyama will miss the remainder of the NBA season due to a blood clot found in his right shoulder
What We’re Reading
This month offers a rare opportunity to view all seven of our celestial neighbors at the same time. Known as the “planetary parade” by space enthusiasts, all seven planets in our solar system are briefly visible in a line across the sky. Click below for tips on optimal viewing:
What’s Happening Downtown
Ten Buck Lunch Week in Midtown continues through Friday, February 28th. This event features great deals from more than twenty local restaurants, click below to read the full list:
· https://midtownokc.com/10-buck-lunch/?mc_cid=f077716936&mc_eid=71bf387036
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess
Sources: [1] Yahoo! Finance [2] Bloomberg [3] Morningstar [4] Investing.com