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Last Week on Wall Street – February 15th, 2025

  S&P 500: 1.47%      DOW:  0.56%       NASDAQ:  2.61%      10-YR Yield: 4.47%

What Happened?

Last week, the markets experienced some volatility across indexes as we saw the Trump administration threating new blanket tariffs to match tax rates of partners, which most Economists warn could heighten inflationary pressure. Alongside hotter-than-expected CPI reports on Wednesday, adding to investor concerns about future inflationary spikes. However, these fears must have been subdued as indexes hit large rebounds; many must have seen Trump’s tariff threats as more of strategic posturing to provoke further conversation among trade groups rather than the onset of a full-scale trade war. 


Meanwhile, strong corporate earnings reports signaled investor confidence heading into the last few weeks of earnings season. Sector-specific performances were notable, with the materials sector rising 1.7%, closely followed by consumer discretionary, which gained approximately 1.6%. The Federal Reserve faces a challenging landscape, as inflation has remained steady despite rising CPI and increased import costs. However, counterbalancing factors—such as an in-line PCE report and growth in restaurant sales—have softened the perceived impact on future inflation rates.

 
The sections below will delve deeper into CPI trends, retail sales, and government layoffs under the Trump administration and the overall implications in the marketplace.

Does the January CPI report signal a shift in inflation?

  • January CPI report was higher than expected, rising .5% / Core CPI rising .4%
  • Steady PCE reports combat concerns on inflation
  • Energy prices rose 1.1%, grocery costs climbed 0.5%—led by a 1.9% jump in meats, fish, and eggs primarily
  • Used car prices rebounded 2.2%. Shelter costs remained stable, with rents increasing 0.3%, though hotel prices surged 1.7%.

The key takeaway – The January CPI report revealed a firmer-than-expected inflation backdrop, amounting to inflation standing at 3.0% for headline CPI and 3.3% for core, suggesting that progress toward the Federal Reserve’s 2% target has slowed. This latest inflation data is unlikely to prompt an immediate shift in Federal Reserve policy, as officials await clearer signals on disinflation trends. Even as CPI has trended upwards in recent months, an in-line estimate to PCE – the Feds preferred measure of inflation – signals that inflation may not have stemmed away as high as some assumed. Even though core services inflation remains sticky, ongoing moderation in shelter costs could support some analysts’ views in a gradual decline in overall price pressures. 

Markets are recalibrating expectations for future rate cuts, with investors now anticipating a more measured approach from policymakers. Looking ahead, the trajectory of inflation will depend on factors such as wage growth, supply chain conditions – especially involved with looming trade wars, and consumer demand resilience.  

Trump Layoffs Push Federal Workers Into Tough Job Hunt

  • Companies have pulled back on white-collar hiring, creating a workforce frenzy 
  • Governmental workers lack tangible experience for private sector jobs
  • Only 4% of Government workers accepted the ‘deferred resignation’ offer

The key takeaway – The Trump administration has intensified federal workforce reductions as part of DOGE’s broader effort to streamline government operations and curb spending. These layoffs, particularly affecting probationary employees and long-tenured bureaucrats, are exacerbating challenges in an already sluggish white-collar job market. Many federal workers, whose experience is deeply rooted in regulatory and administrative roles, struggle to transition into private-sector opportunities where companies prioritize metrics-driven performance. 

These layoffs are not to be confused with the administration’s ‘deferred resignation’ offer, whereas of Feb 12th, at the programs closure, 75,000 federal employees have accepted their offer. This program, announced in late January 2025, allowed employees to resign voluntarily while continuing to receive pay and benefits through September 30, 2025. The offer was primarily targeted at employees unwilling to comply with the administration’s mandate to return to in-person work, effectively providing an option for those preferring not to continue under the new policies. Notably, certain groups, such as military personnel, U.S. Postal Service workers, and positions related to immigration enforcement and national security, were excluded from this offer.

For the employees “laid off” experts highlight a fundamental mismatch between the skill sets of long-time federal workers and corporate hiring demands. While government employees tend to have a median age higher than the private sector, they may have “more experience” but without quantifiable achievements in areas like sales growth or revenue impact, these individuals find it increasingly difficult to secure private-sector roles. Additionally, professional hiring in fields such as project management, IT, and accounting has slowed in recent years, making job searches even more competitive. While recent graduates have been among those hardest hit, the influx of displaced government employees into the labor pool further intensifies hiring challenges across the white-collar sector. 

Retail sales slump. Wildfires, cold snap and post-holiday blues depress spending

  • January sales post biggest drop in almost two years. .9% decline of .2% decline forecasted.
  • Consumers took a breather from holiday shopping season and a severe cold snap in the U.S. kept people indoors.
  • Restaurant sales also grew almost 1%. 

The key takeaway – The numbers signify that consumers may be taking a break in spending with retail sales falling .9%, larger than the .2% expectation. Economists often view retail sales as a barometer of consumer health and inflation trends. However, external factors such as severe weather events can heavily influence spending patterns. The recent cold snap affecting much of the U.S., along with devastating wildfires in California, played a significant role in this downturn.

Moreover, January is historically a slower month for retail sales, as consumers pull back on spending after the holiday season, often prioritizing credit card payments. As Retail sales account for one-third of total consumer spending, with auto sales—cars and trucks—comprising one-fifth of all retail activity. Last month, auto sales declined 3% as dealers offered discounts to entice buyers constrained by higher interest rates. However, excluding auto sales, overall retail sales fell by a smaller 0.4%. Surprisingly, restaurant sales increased, defying typical trends during periods of economic uncertainty, possibly signally sentiment that the economy is in better shape with the purchase of more prepared meals. Ultimately this report will hinder the overall growth of the US economy for January, the overarching scorecard for the economy.  

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