Weekly Capital Markets Update

Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 6,115, representing an increase of 1.52%, while the Russell Midcap Index also moved slightly higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 0.05% over the week. As developed international equity performance and emerging markets were both higher, returning 2.91% and 2.01%, respectively. Finally, the 10-year U.S. Treasury yield moved slightly lower, closing the week at 4.48%.

During the past week, Investors were provided with a great deal of information concerning the current state of inflation within the economy. This information was made up of both data and commentary from Fed Chair Powell. The January data for the Consumer Price Index (CPI) and the Producer Price Index (PPI) were released on Wednesday and Thursday. On Friday, Retail Sales for January were reported. As our readers know, we give great weight to Retail Sales as a major determinant of the overall economy since it represents over two thirds of GDP.

The CPI for January accelerated a seasonally adjusted 0.5% for the month, putting the annual inflation rate at 3%, according to the Bureau of Labor Statistics. Both data points were higher than the respective consensus estimates for 0.3% and 2.9%. The annual rate was 0.1 percentage point higher than December. Excluding volatile food and energy prices, the CPI rose 0.4% in the month, putting the 12-month inflation rate at 3.3%. That compared with respective estimates for 0.3% and 3.1%. The annual core rate also was up 0.1 percentage point from December.

The PPI, also released by Bureau of Labor Statistics, increased by a seasonally adjusted 0.4% on the month, compared with the consensus estimate of 0.3%. Excluding food and energy, the core PPI was up 0.3%, in line with the forecast. There were some details of the report which indicated that base inflation pressures are easing. In particular, some costs related to health care showed easing — physician care, for instance, fell 0.5%. Also, domestic airfares declined by 0.3% and brokerage services prices were off 2.2%.

Throughout his testimony on Capitol Hill Chair Powell stated that the Fed is in no rush to further decrease interest rates any time soon. The Fed is now not seen moving until September, with only a single quarter-point rate reduction now seen this year. Additionally, Powell stated, “The economy is strong, the labor market is solid, and we have the luxury of being able to wait and let our restrictive policy work to get inflation coming down again. And that’s what we’re doing,” He cautioned that a month’s bad data should not be taken as a signal that progress on inflation is reversing, and noted that the Fed sets its 2% inflation target using the separate Personal Consumption Expenditures price index that typically runs lower than the better-known CPI. The January PCE number will not be published until February 28.

U.S. retail sales dropped by the most in nearly two years in January, likely weighed down by frigid temperatures, wildfires and motor vehicle shortages, suggesting a sharp slowdown in economic growth early in the first quarter. But the larger-than-expected and across the board decline in retail sales reported by the Commerce Department on Friday probably does not reflect a material shift in consumer spending as it also followed four straight months of hefty increases. A sharp upward revision to December’s sales took some of the sting from the report. Economists also noted that it was difficult to strip out large seasonal swings from the data at the turn of the year.

Best wishes for the Week ahead.

Equity and Fixed Income Index returns sourced from Bloomberg on 2/14/25. CPI and PPI data is sourced from the Bureau of Labor Statistics. Retail Sales data is sourced from the Commerce Department. Economic Calendar Data from Econoday as of 2/14/25. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.

Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.