Weekly Wrap

The final week of February was marked by some corrective action in the major indices. The Nasdaq Composite slumped 3.5%, turning negative for the year, and the S&P 500 logged a 1.0% decline. The Dow Jones Industrial Average ultimately registered a 1.0% gain this week after some recovery buying on Friday. The Dow was also negative heading into Friday.

Increased selling in the mega cap space led to the disproportionate price action in the Nasdaq Composite versus other major indices. The Vanguard Mega Cap Growth (MGK) declined 2.7% this week. 

NVIDIA (NVDA) was a big drag in that respect after earnings failed to live up to high expectations. Shares dropped 7.1% this week.

Buy-the-dip approaches, which proved successful earlier in the month, stalled out this week. This fueled the unwinding of momentum trades, which was another contributing factor driving selling in NVDA. The initial trigger for the negative bias was inflation worries and growth concerns rooted in tariff proposals and efforts to cut government spending, along with soft economic data.

This week data includes the February Consumer Confidence Index, which featured a drop in the index from 105.3 to 98.3 (the largest monthly decline since August 2021) and a surge in average 12-month inflation expectations from 5.2% to 6.0%. 

New home sales declined 10.5% month-over-month in January to a seasonally adjusted annual rate of 657,000, there was a jump in weekly initial jobless claims and the pending home sales index hit a record low in January.

Also, the Personal Income and Spending report for January showed welcome disinflation on a year-over-year basis in the core-PCE Price Index (the Fed's preferred inflation measure), yet there was a noticeable 0.5% month-over-month decline in real personal spending, which is going to be a big drag on Q1 GDP forecasts.

As a result, the Atlanta Fed GDPNow forecast for Q1 GDP was revised to a 1.5% contraction from 2.3% growth in the last estimate.

On the tariff front, President Trump announced that tariffs for Canada and Mexico will start March 4; and that an additional 10% tariff for China will go into effect the same day. That followed an indication that a 25% tariff for the EU will be announced soon.

There was also new developments on the geopolitical front that market participants were responding to. President Trump and Ukraine's President Zelenskyy had a heated meeting in the White House, leading Mr. Trump to tell Mr. Zelenskyy he is "gambling with World War III." Market participants were hopeful President Zelenskyy would sign a rare earths deal when he visited the White House, but that did not materialize.

Treasuries settled sharply higher in response to the growth concerns and tariff worries. The 10-yr yield sank 19 basis points this week, and 34 basis points in February, to 4.23%. The 2-yr yield settled 19 basis points lower this week, and 24 basis points lower this month, to 4.00%.

Crude oil fell back below $70/bbl, widening its February loss to $2.75, or 3.8%, in another manifestation of growth concerns that could impact demand.

Monday:

The stock market had a mixed showing. Early weakness invited a buy-the-dip response, especially in the mega cap space, which was not maintained into the close. The major indices ultimately settled near their lows of the day.

Selling pressure increased after President Trump said at press conference that tariffs on Mexico and Canada are going forward on schedule after the one-month delay.

Apple (AAPL), meanwhile, was a winning standout after revealing plans to invest over $500 billion domestically over the next four years. There was also speculation that the commitment could result in a tariff exemption for the company.

There was no US economic data of note on Monday.

Tuesday: 

There were troubles for the stock market at Tuesday's open. The mega-cap stocks headed south and carried the major indices with them at the start. Things worsened, though, at 10:00 a.m. ET with the release of the February Consumer Confidence Index. That report, which featured a drop in the index from 105.3 to 98.3 (the largest monthly decline since August 2021) and a surge in average 12-month inflation expectations from 5.2% to 6.0%, sent the indices cascading to their lows for the day.

Treasuries, meanwhile, rallied on the news in a safe-haven trade that was further supported by tariff angst, growth concerns, and diplomatic tension as reports indicated the Trump administration is looking at tightening restrictions on chip exports to China. The latter report sent the Philadelphia Semiconductor Index 2.2% lower.

A $70 billion 5-yr note auction, which was met with strong demand, fortified the Treasury market's position and its fifth straight winning session.

Reviewing Tuesday's economic data:

• The Conference Board's Consumer Confidence Index dropped to 98.3 in February (Briefing.com consensus 103.1) from an upwardly revised 105.3 (from 104.1) in January. This was the largest monthly decline since August 2021.
  • The key takeaway from the report is that the drop in confidence was seen across all age groups with worries about tariffs, inflation, and future employment prospects driving the decline.
• December FHFA Housing Price Index (actual 0.4%; prior revised to 0.4% from 0.3%)
• December S&P Case-Shiller Home Price Index (actual 4.5%; Briefing.com consensus 4.4%; prior 4.3%)

Wednesday:

The stock market got off to a promising start, led by NVIDIA (NVDA) and the mega-cap stocks, and some optimism over tax cut prospects after the House passed a resolution (217-215) for a large reconciliation bill that calls for $4.5 trillion in tax cuts over the next decade. The early gains carried the S&P 500 back above its 50-day moving average (6,005), but it didn't stay there for long. Sellers ultimately came in to reorient that key short-term technical level to a point of resistance again.

The inability to hold above that technical level invited a renewed wave of selling interest that the indices surfed for most of the afternoon trade. The Dow, Nasdaq, S&P 500, and Russell 2000 had been up as much as 0.6%, 1.4%, 0.9%, and 1.4%, respectively, at the best levels of the session, yet each of them retreated to negative territory in the afternoon session.

They did so, catalyzed by several proximate causes:

• The S&P 500's failure to hold above support at its 50-day moving average
• The inability of the mega-cap cohort to hold onto stronger gains
• An Axios report that the White House is ordering agencies to get ready for a large amount of firings
• A reminder from President Trump at his first Cabinet meeting that he is not dropping the tariffs on Canada and Mexico scheduled to go into effect March 4 and that his plan for reciprocal tariffs will start to be implemented April 2

The major indices managed to claw their way back from lower levels in the closing stages of trading, but the overall tone was understandably mixed -- and the indices themselves little changed -- in front of NVIDIA's market-moving earnings report after the close. The S&P 500 avoided a fifth consecutive loss by the narrowest of margins.

Reviewing Wednesday's economic data:

• New home sales decreased 10.5% month-over-month in January to a seasonally adjusted annual rate of 657,000 units (Briefing.com consensus 681,000) from an upwardly revised 734,000 (from 698,000) in December. On a year-over-year basis, new home sales were down 1.1%.
  • The key takeaway from the report is that new home sales in January felt the brunt of affordability constraints that were tightened by elevated mortgage rates and higher prices.
• MBA Mortgage Applications Index -1.2% week-over-week (prior -6.6%) with refinance applications down 4% and purchase applications flat

Thursday:

Thursday did not turn as envisioned when NVIDIA (NVDA) was trading nearly 3.0% higher in pre-open action following its earnings report. Actually, it was a starkly disappointing day for a stock market that appears to be in a corrective phase that has canceled the success of buy-the-dip approaches and has fueled the unwinding of momentum trades. In turn, it is a corrective phase that has been triggered by inflation worries and growth concerns rooted in tariff proposals and efforts to cut government spending.

Those attributes were all on display and were wrapped up in the following developments:

• Disappointing price action in NVIDIA (NVDA), which rolled over quickly after the start of trading
• President Trump's announcement that tariffs for Canada and Mexico will start March 4; and that an additional 10% tariff for China will go into effect the same day. That followed yesterday's indication that a 25% tariff for the EU will be announced soon.
• Comments from Kansas City Fed President Schmid (FOMC voter), Cleveland Fed President Hammack (non-FOMC voter), and Philadelphia Fed President Harker (non-FOMC voter), all of whom in one way or another suggested the Fed isn't in a hurry to lower the fed funds rate
• Festering growth concerns, fueled by the jump in weekly initial jobless claims and the pending home sales index hitting a record low in January
• Month-end activity

Reviewing Thursday's economic data:

• Initial jobless claims for the week ending February 22 increased by 22,000 to 242,000 (Briefing.com consensus 220,000). Continuing jobless claims for the week ending February 15 were 1867K (prior revised to 1867K from 1869K)
  • The key takeaway from the report is that initial jobless claims reached their highest level since early December, which will add to the market's festering concerns about a slowdown in growth.
• The second estimate for Q4 GDP was 2.3% (Briefing.com consensus 2.3%; prior 2.3%) while the second estimate for the Q4 GDP Deflator was 2.4% (Briefing.com consensus 2.2%; prior 2.2%).
  • The key takeaway from the report is that the growth was driven largely by consumer spending and government spending, but with targeted efforts by the Trump administration to cut government spending and to implement tariffs, there will be concerns about GDP growth decelerating in coming quarters due to less of a contribution from consumer spending and government spending.
• January Durable Goods Orders were up 3.1% (Briefing.com consensus 1.8%; prior revised to -1.8% from -2.2%). Excluding transportation, durable goods orders were flat (Briefing.com consensus 0.4%; prior revised to 0.1% from 0.3%).
  • The key takeaway from the report is that nondefense capital goods orders, excluding aircraft -- a proxy for business spending -- logged a healthy 0.8% increase in January, offsetting the headline disappointment of an unchanged reading for durable goods orders, excluding transportation.
• January Pending Home Sales declined 4.6% (Briefing.com consensus -0.8%) following an upwardly revised 4.1% decline (from -5.5%) in December.
  • The key takeaway from the report is that pending home sales hit their lowest level on record going back to 2001.

Friday:

The stock market closed with gains across the board thanks to a late afternoon push following an otherwise tumultuous session. The S&P 500 registered a 1.6% gain and the Nasdaq Composite jumped 1.6%.

Just about everything came along for the afternoon rise, which was led by big gains in mega cap stocks following a soft showing this week in the space.

Treasuries also settled with gains, reflecting ongoing concerns about growth.

Reviewing Friday's economic data:

• January Adv. Intl. Trade in Goods -$153.3 bln; Prior was revised to -$122.0 bln from -$122.1 bln
• January Adv. Retail Inventories -0.1%; Prior was revised to -0.5% from -0.3%
• January Adv. Wholesale Inventories 0.7%; Prior was revised to -0.4% from -0.5%
  • The key takeaway from the report is the widening goods deficit. That was likely a byproduct of the tariff push as importers worked to get ahead of the tariffs, yet it will likely stoke President Trump's push to get going with the tariff implementation.
• January Personal Income 0.9% (Briefing.com consensus 0.3%); Prior 0.4%, January Personal Spending -0.2% (Briefing.com consensus 0.2%); Prior was revised to 0.8% from 0.7%, January PCE Prices 0.3% (Briefing.com consensus 0.3%); Prior 0.3%, January PCE Prices - Core 0.3% (Briefing.com consensus of 0.3%; Prior 0.2%
  • The key takeaway from the report isn't singular. There are two: there was welcome disinflation on a year-over-year basis, yet there was a noticeable 0.5% month-over-month decline in real personal spending, which is going to be a big drag on Q1 GDP forecasts. Net-net, not a great report for the growth outlook considering, too, that the personal savings rate jumped to 4.6% from 3.5%.
• February Chicago PMI 45.5 (Briefing.com consensus 41.2); Prior 39.5