Markets Last Week - 14/02/25

Market Update U.S. Stock Markets Edge Toward Record Highs 

U.S. stocks closed mostly higher for the week, with the Nasdaq leading the gains, rising 2.58%. Growth stocks, outperformed value stocks for the second time this year. However, small-cap stocks lagged behind, with the Russell 2000 Index underperforming the S&P 500 Index by 146 basis points (1.46 percentage points). Both the S&P 500 and Nasdaq Composite ended the week within 1% of their all-time highs showing again why it is important to remain invested and not trying to time the markets.

Thursday saw the strongest market performance, driven by President Donald Trump’s decision to hold off on imposing new global tariffs. Instead, he signed an order that could lead to reciprocal tariffs on a country-by-country basis by April 1, pending further review. While some uncertainty remains, investors appeared optimistic about the delay, which allows more time for trade negotiations. 

January Inflation Data Fuels Rate Hike Concerns 

CPI Data (January): 

• Headline CPI: +0.5% month-over-month, +3.0% year-over-year (up from December’s +0.4% and +2.9%). 

• Shelter costs: +0.4%, contributing nearly 30% of the total increase. 

• Core CPI (excluding food and energy): +0.4% (double the +0.2% increase in December). 

PPI Data (January): 

• Producer Price Index: +0.4% (higher than the expected +0.3%). 

• Key components like health care and airfares showed signs of cooling, easing concerns. 

Federal Reserve Chair Jerome Powell, testifying before the Senate Banking Committee, acknowledged the inflation uptick, stating that while the Fed has made progress in reducing inflation, it is “not quite there yet” and will maintain restrictive monetary policy for now. Chicago Fed President Austan Goolsbee reinforced this view, calling the inflation data “sobering” and warning that if similar trends persist, the fight against inflation is far from over. As a result, futures markets pushed expectations for the first rate cut from September to December. 

Treasury Yields React to Inflation Data 

U.S. Treasury yields fluctuated in response to the inflation reports. The benchmark 10-year Treasury yield briefly hit 4.66% after Wednesday’s CPI release before retreating later in the week. (Bond prices and yields move in opposite directions.) Municipal bonds underperformed Treasuries following the CPI report but recovered slightly on Thursday. 

Investment-grade corporate bonds outperformed Treasuries, supported by strong demand despite light issuance. Higher yields and limited supply encouraged secondary market activity. Meanwhile, the high-yield bond market remained stable despite equity gains and Treasury yield volatility. 

Market Performance Summary 

Index	Friday's Close	Weekly Change	Year-to-Date % Change
Dow Jones Industrial Average (DJIA)	44,546.08	+242.68	4.71%
S&P 500	6,114.63	+88.64	3.96%
Nasdaq Composite	20,026.77	+503.37	3.71%
S&P MidCap 400	3,198.61	-7.99	2.49%
Russell 2000	2,279.98	+0.27	2.23%

The UK’s FTSE 100 saw a modest increase of 0.37% over the week. 

UK Economy Unexpectedly Expands; BoE Urges Caution on Rate Cuts 

Contrary to forecasts of a 0.1% contraction, the UK economy grew by 0.1% in the final quarter of last year, thanks to a stronger-than-expected December expansion of 0.4%. According to the Office for National Statistics (ONS), growth in the services and construction sectors helped offset a decline in industrial production. Overall, GDP increased by 0.9% in 2024, a notable improvement from the 0.3% growth recorded in 2023. 

Despite the positive data, Bank of England (BoE) Chief Economist Huw Pill stressed the need for caution when considering interest rate cuts. Speaking to Reuters, he warned that persistent wage growth remains a concern, stating, "We can't simply remove all restrictions overnight or cut rates aggressively." 

In contrast, Monetary Policy Committee (MPC) member Catherine Mann, formerly one of the committee’s most hawkish voices, argued that the BoE should have reduced rates more decisively at its last meeting. She suggested a half-percentage-point cut would have been more appropriate, given signs of a weakening labor market and slowing consumer demand—both of which are helping to ease inflationary pressures. 

The pan-European STOXX Europe 600 Index climbed 1.78% over the week, setting a new record high. Investor optimism was fueled by strong corporate earnings and renewed hopes for a resolution to the Ukraine-Russia conflict. Major markets across the continent posted gains, with Germany’s DAX up 3.33%, France’s CAC 40 rising 2.58%, and Italy’s FTSE MIB increasing 2.49%. 

Eurozone Industrial Output Declines More Than Expected; Growth Revised Up 

Industrial production in the eurozone contracted by 1.1% in December—more than double the expected 0.5% decline—due to sharp drops in capital and intermediate goods manufacturing. On an annual basis, production fell by 2.0%, weighed down by an 8.0% slump in capital goods output. 

Despite weaker industrial activity, the broader eurozone economy showed resilience. Revised data from the European statistics agency indicated that GDP expanded by 0.1% in the fourth quarter, rather than stagnating as previously estimated. For the full year, the eurozone recorded a 0.7% growth rate.