CWS Market Review – February 11, 2025

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After a very good 2024, the stock market seems to have settled into its comfort zone. For the S&P 500, that’s apparently anywhere between 6,025 and 6,085. The index has closed inside that narrow range ten times in the last eleven trading sessions.

On Thursday, the S&P 500 closed higher by one-thirtieth of 1%. That means for every $30 you have in the market, you made one penny today.

That’s so small that if the index closed higher by that much every day for an entire year, the total gain would be a little less than 9%. In fact, today’s gain almost perfectly matches the market’s average gain for a single day.

This is a big change from last year when the index steadily marched higher without much pushback.

We’re also not seeing any major undercurrents within the market. Neither value nor growth are leading the way. Large-cap tech has had some good days recently and some lousy ones, but there’s no larger trend at work except the absence of one.

We’re heading toward the back end of earnings season, and so far, this has been a very good earnings season for Wall Street. According to numbers from S&P Global Market Intelligence, the S&P 500 is on pace for Q4 earnings growth of 13.89%. That’s up from 8.71% one month ago.

Of the companies that have reported so far, 76.6% have beaten on earnings and 61.4% have beaten on sales.

So where does this put the Federal Reserve? Traditionally, the Fed has had its fingerprints near the scene of any bear market, but this time could be different.

“We Do Not Need to Be in a Hurry”

“We do not need to be in a hurry.” So said Fed Chair Jerome Powell as he testified before Congress today. In this instance, I think the Fed Chair is exactly right.

The Fed doesn’t need to act swiftly right now since the Fed has already cut rates a few times. That’s taken some of the pressure off the central bank. We also don’t know what the outcome of President Trump’s tariff policies will be, or even how long they’ll last.

Twice a year, the Fed Chairman testifies before members of Congress. I should caution you that watching members of Congress attempt monetary policy is not for the faint of heart. The boring stuff happens in the House or Senate chambers, but the real action is in the committees.

A few years ago, I went to the Senate office building to watch the festivities. I got there early and was able to snag the seat directly before Alan Greenspan. If you like endless jargon, then the Fed testimony is for you.

At its last meeting, at the end of January, the Federal Reserve decided to leave interest rates alone. The current range for the Fed funds rate is 4.25% to 4.5%. Before the January meeting, the Fed had lowered interest rates at three successive meetings. The first cut was by 0.5% and the other two were by 0.25%.

So far, there hasn’t been any disharmony between the White House and the Fed. President Trump even said he agreed with the Fed holding rates steady at its last meeting, but that goodwill may not last. Last Friday’s jobs report could lead to calls for more rate cuts.

The Economy Created 143,000 New Jobs Last Month

On Friday, the government said that the U.S. economy added 143,000 net new jobs last month. That’s an OK figure, but it’s nothing great. It was below Wall Street’s estimates of 169,000 jobs, and it was also below December’s revised gain of 307,000.

The best news in the report is that average hourly earnings rose by 0.5%. That’s a very nice gain and it’s more than inflation. In previous reports, wages have been rising but only slightly more than inflation. Over the last year, average hourly earnings are up 4.1%.

On a technical note, the Bureau of Labor Statistics did its annual revisions, and that reduced its jobs count for last year. In plain English, they overcounted the number of jobs. We already knew they overcounted, but we didn’t know by how much. It turns out that it was by 589,000 jobs.

Oopsie!

On the plus side, the jobs numbers for November and December were revised higher. The unemployment rate fell to 4.0%. Except for January 1970, the unemployment rate is lower now than it was during the entire 1970s, 80s and 90s.

Job growth for January was concentrated in health care (44,000), retail (34,000) and government (32,000). The total gain for the month was slightly off the average 166,000 in 2024, the BLS said. Social assistance added 22,000, while mining-related industries lost 8,000.

Also, more people are looking for work. The labor force participation rate increased by 0.1% to 62.6%. The broader U-6 jobless rate held steady at 7.5%. There’s really nothing in this report to convince the Fed that it needs to get back to lowering rates, but that could change.

The Fed meets again in another month and it’s very doubtful that they’ll change rates. In fact, the Fed may not make any rate changes for a few months. Currently, traders think there’s a 59% chance of a rate cut by the end of July.

The next big news will come tomorrow when the Fed releases the CPI report for December. This could be a very influential report. The backstory is that inflation came down quickly from its high, but it’s had a hard time falling much below 3% or so. The Fed’s official policy is to get inflation back to 2%.

I’m really starting to question the efficacy of a 2% inflation target. What makes 2% inflation vastly better than 3%? I don’t know the answer.

For tomorrow, Wall Street expects the core and headline rates to have increased by 0.3% last month. That would place the 2024 headline rate at 2.8%, and the full-year core rate at 3.2%. The year-over-year rates have been moving higher in recent months, which must be frustrating for the Fed.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on February 11th, 2025 at 6:38 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.