EZBites for the week ending February 28, 2025
DOW:+1.0% (YTD +3.0%)
NASDAQ:-3.5% (YTD-2.4%)
S&P:-1.0% (YTD+1.2%)
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 fell 1.0%. The DJIA ultimately registered a 1.0% gain after some recovery buying on 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 their super-high expectations. NVDA dropped 7.1% this week. Buy-the-dip tactics, which proved successful earlier in the month, stalled out, which fueled the unwinding of momentum trades. ?This was a contributing factor driving selling in NVDA.
The initial selling catalyst trigger was inflation worries, growth concerns and soft economic data, exacerbated by executive tariff proposals and efforts to cut government spending. ? January new home sales declined 10.5% month-over-month to a seasonally adjusted annual rate of 657,000, and the pending home sales index hit a record low. ?There was a jump in weekly initial jobless claims.
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 will be a 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. This is a big change ? 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 — on Friday President Trump and Ukraine's President Zelenskyy had a heated meeting in the White House in which Trump accused Ukraine of not being thankful enough for US assistance. ?Market participants were hopeful President Zelenskyy would sign a rare earths deal when he visited the White House, but that did not materialize. Treasury prices jumped sharply higher in response to the growth concerns and tariff worries. The 10-yr yield sank 34 basis points in February, to 4.23%. The 2-yr yield settled 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.