This morning was light on economic news, with the only report of significance coming at 8:30 A.M. (EST) when the Labor Department reported its latest initial jobless claims data. Specifically, unemployment insurance claims for the week ending February 15th totaled 219,000, which was up 5,000 from the prior week’s revised tally, but still indicative of a tight labor market. In addition to the labor data, we learned from the Philadelphia Federal Reserve that manufacturing activity in the greater Philadelphia area came in at 18.1, which was down from the prior-month’s figure of 44.3, but above the consensus forecast of 13.2. Speaking of the Federal Reserve, we will get monetary policy commentary from a number of district Presidents today. The equity futures, which were down heading into the economic releases, mostly driven by earnings news from Walmart (see below), are pointing to a modestly lower opening when trading kicks off stateside.
So far during this abbreviated-holiday week, the major averages have mostly traded in a tight band, with the S&P 500 Index ending yesterday’s mundane session at a record high. The lack of any major moves is likely due to earnings season starting to wind down and the dearth of important economic news. We are in the midst of a stretch spanning from last week’s reports on consumer and producer prices to next week’s Personal Consumption Expenditures (PCE) Price Index data (due February 28th) that will bring little in the way of market-moving economic headlines.
In general, the market is still trying to figure out if inflation is reaccelerating or if the recent hotter-than-expected consumer and producer (wholesale) price data are just a temporary setbacks for the Fed in its fight to rein in prices. The inflation data will play a huge role in how hawkish the central bank is this year. The current consensus is that the Fed will not look to cut rates again before the July FOMC meeting, at the earliest. The release of the minutes from the January Federal Open Market Committee (FOMC) meeting yesterday afternoon (more below) did provide some more clues about the central bank’s near-term stance on monetary policy.
We did get some important earnings news from Corporate America this morning. Retailing behemoth Walmart (WMT) reported January-quarter earnings per share of $0.66, on revenues of $180.6 billion. Those figures modestly exceeded the Wall Street consensus, but comparable-store sales growth slowed from the third-quarter rate, and U.S. net e-commerce sales decelerated a bit in the final quarter of fiscal 2022. The company also said it will not be immune to possible forthcoming tariffs on international goods from the Trump Administration. Shares of Walmart are trading notably lower in pre-market action following the release of fiscal fourth-quarter results, and its weak start to the trading day will be responsible for most of the Dow Jones Industrial Average’s initial setback. Likewise, the stock of online retailer Wayfair (W) is down after the company reported flat revenues and another quarterly loss. Conversely, shares of toymaker Hasbro (HAS) and fast-food operator Shake Shack (SHAK) are looking at higher openings following the release of quarterly results.
As noted, the January FOMC minutes were closely scrutinized by Wall Street for more insight into the central bank stance on near-term monetary policies. The minutes showed that the Fed will likely remain cautious on the interest-rate front for the next several months. The readout said the central bank is well positioned to take its time to assess the evolving outlook. Several Fed voting members wanted to see more evidence of disinflation before considering another rate cut, there is a growing consensus among policymakers that the federal funds rate is not too far above the neutral rate. This will likely lead to a continued pause on the interest-rate front.
Investors also are uncertain about what the ultimate impact of the announced tariff policies from the Trump Administration on the prices for goods and services and the overall near-term health of the U.S. economy. Over the last week, the economic data have been a bit disappointing, with declines witnessed in January retail sales and housing starts. Both sectors appear to have been hurt by the continued high borrowing costs, which did not get any relief from the Federal Reserve lowering the federal funds rate by a full-percentage point last fall. Treasury market yields actually rose after the Fed began loosening the monetary reins last fall, as Wall Street worried that inflation has reaccelerated. Rates for 30-year fixed mortgage and on credit cards still remain stubbornly high and the elevated costs are starting to take a toll on two sectors (consumer and residential construction) that are major contributors to the nation’s gross domestic product (GDP).
So what is an investors to do in this uncertain environment? With it looking more likely that we will not see a significant near-term decline in inflation and the Federal Reserve likely to be less dovish (two things that fueled equity buying the last two years), a big focus will be on targeting companies that are demonstrating earnings growth and visibility. This backdrop has led to a significant amount of sector rotation over the first two months of this year. The stocks of the small-cap companies, which typically don’t fare as well in a higher lending environment, are struggling to gain traction again so far in 2025. – William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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