CWS Market Review – February 18, 2025

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The stock market was closed yesterday in honor of President’s Day. The long weekend wasn’t enough to stop the bulls. The S&P 500 closed Tuesday at 6,129.58. That’s another new all-time closing high.

For any person who’s watched financial markets long enough, you’re struck by how easily the market can rally amid unpleasant news. The old saying is that “the market climbs a wall of worry.”

Think of all the scary news that could have led you to dump all your stocks. Yet, through it all, sitting and waiting was a great strategy.

Despite it being another up day for Wall Street, Meta Platforms (META), the parent of Facebook, snapped a 20-day winning streak today. The last time that Meta’s stock closed lower was on January 16. Over that time period, Mark Zuckerberg’s net worth increased by $40 billion.

On January 29, Meta reported Q4 earnings of $8.02 per share. That was 18% higher than Wall Street’s forecast. Check out all those black crosses in a row!

December Retail Sales Drop 0.9%

Wall Street got a big shock on Friday with the latest retail sales report. According to the report, retail sales fell 0.9% last month. Bear in mind, that’s not adjusted for the 0.5% inflation we saw last month.

That retail sales report was much worse than expected. Wall Street had been expecting a modest decline of 0.2%. The number for November was revised to 0.7%.

This suggests that consumers are holding back on their shopping. I can’t blame them. Consumers are getting squeezed by higher prices – eggs are up over 50% over the last year – and also by small wage gains. Consumers make up two-thirds of the U.S. economy. If shoppers aren’t happy, the economy won’t prosper.

Excluding autos, prices fell 0.4%, also well off the consensus forecast for a 0.3% increase. A “control” measure that strips out several nonessential categories and figures directly into calculations for gross domestic product fell 0.8% after an upwardly revised increase of 0.8%.

With consumer spending making up about two-thirds of all economic activity in the U.S., the sales numbers indicate a potential weakening in growth for the first quarter.

Receipts at sporting goods, music and book stores tumbled 4.6% on the month, while online outlets reported a 1.9% decline and motor vehicles and parts spending dropped 2.8%. Gas stations along with food and drinking establishments both reported 0.9% increases.

Some folks are saying the report really isn’t that bad. Some of the drop is due to bad weather. Also, auto sales fell after delivering a big gain in December. Maybe so, but those factors were known prior to the report and it still fell far below expectations.

The retail sales report is especially worrisome because it comes after another bad inflation report. It’s becoming very clear that inflation isn’t going away. Core inflation is holding steady around 3.3% or so, which is much higher than the Fed’s target.

The Budget Deficit Soars

Yesterday, the government said it ran a budget deficit last month of $129 billion. Holy moly, that’s big! The deficit is up significantly from the $22 billion deficit it ran for last January.

It’s not hard to pinpoint the problem. For January, receipts grew 8% to $513 billion, but outlays were up 29% to $642 billion.

The Treasury said there were some technical reasons for the big increase such as benefit payment calendar shifts. Also, payments of $87 billion worth of February benefits were paid out in January. Treasury said the adjusted deficit increase for the month would have been $21 billion instead of the reported $107 billion.

Still, that doesn’t exactly put me at ease. For the first four months of this fiscal year, the U.S. Treasury reported a deficit of $840 billion. That’s up 58% from last year. For the year so far, receipts are up 1% to $1.6 trillion, but outlays are up 15% to $2.4 trillion. For the new fiscal year, individual income taxes are up 6%.

Customs receipts were up 12% but that’s a very small portion of receipts. This doesn’t yet reflect any of the new tariffs on Chinese goods that went into effect recently.

The most concerning number is the interest payments on the debt. You can’t escape those. So far this year, interest expenses are up 10% to $318 billion. Social Security outlays, which is the single-largest item on the budget, are up 8% to $529 billion. Military spending rose 13% to $318 billion.

I try not to be an alarmist on these matters, but if we’re in better fiscal shape, that gives the Fed a lot more room to lower interest rates. The rolling 12-month deficit is now running at 7.3% of GDP. Ideally, that should be cut in half. These deficits are having an effect. Consider that over the last 16 months, the price for gold has gained close to 50%.

Even with the holiday-shortened week, there are still a few things to look out for this week. Tomorrow we’ll get reports on housing starts and building permits. The Fed will also release the minutes of its last meeting. The Fed decided to leave interest rates alone, but it will be interesting to see if the central bank has any broader concerns about the economy.

On Thursday, we’ll get the regular jobless claims report. This data series has held up well in recent months despite the concerns news about retail sales. Then on Friday, we’ll get the report on existing home sales.

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

– Eddy

Posted by on February 18th, 2025 at 6:17 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.