Markets Blog
David Matzko, LPL Research
LPL Research provides its Weekly Market Performance for the week of February 3, 2025. U.S. stocks faced another busy week with tariff headlines and a flurry of corporate earnings in focus. Major averages ended the week lower despite attempting to trim early losses. Overseas, European equities continued to move to record highs during their weekly gain, while Asian markets ended mixed. Tariff concerns ramped up volatility in bond markets over the last five days, leading the Bloomberg U.S. Aggregate Index to end little changed. Crude oil prices fell on increased inventories and trade jitters, while gold extended its recent rally.
Index Performance
U.S. and International Equities
U.S. Equities: Investors faced another volatile and busy week in equity markets, however, major U.S. averages held up well. Major indexes ended the week lower, after tariff threats rattled global markets on Monday and Friday. Over the weekend, President Trump unveiled a set of tariffs targeting goods from Canada, Mexico, and China. The new policy included a 25% tariff on goods imported from Canada and Mexico, except for Canadian fuel imports, which faced a reduced 10% levy. Plus, Trump announced a 10% tariff on goods imported from China. After Monday’s drop, stocks delivered somewhat of a relief rally on Tuesday after Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau were able to strike deals with President Trump to delay the start date by 30 days. However, there was no reprieve for China, and the 10% levy on Chinese goods went into effect. China delivered a calculated response with a 10% tariff of its own on approximately 80 U.S. products (including energy products) taking effect on February 10, plus a probe into Alphabet’s Google (GOOG/L) regarding breaches of anti-trust laws and tighter export controls on critical minerals.
Tariff jitters took a breather until Friday, when President Trump threatened reciprocal levies. Corporate earnings entered the spotlight through the middle of the week. Another batch of Magnificent Seven names highlighted reports, including Google parent company Alphabet (GOOG/L) and Amazon (AMZN). Shares of GOOG/L dropped after Alphabet’s cloud revenue growth fell short of expectations, and AMZN also traded lower on disappointing guidance and a warning of capacity constraints in cloud computing. Takeaways from earnings reports were mixed but had little influence on broader market sentiment as earnings growth for the S&P 500 is tracking to a nearly 16% increase, with nearly 60% of companies having reported.
International Equities: Across the pond, European stocks printed another solid weekly gain. The European benchmark STOXX 600 Index extended its move higher, setting more record highs, while the U.K. benchmark FTSE 100 also delivered a weekly advance and fresh records. European markets were broadly supported by strong corporate earnings and positive key takeaways, while another 0.25% rate cut from the Bank of England (BOE) lifted sentiment as central banks across the region continued to ease monetary policy.
Meanwhile, Asian equities ended the week mixed. Greater China was in focus in its return for the extended Lunar New Year holiday amid ongoing tariff concerns and actions from both the U.S. and China. Mainland China ended with solid gains, missing most of the early week action since markets did not re-open until Wednesday, while Hong Kong ended sharply higher on IT names as hopes of tech advancements lifted stocks. Plus, consumer names rallied after the U.S. Postal Service rescinded its ban on China-based parcels. Japan ended lower amid ongoing yen volatility as stocks failed to build on commentary from central bankers in support of rate hikes.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg U.S. Aggregate Index ended the week little changed. The 10-year Treasury yield fell four basis points (0.04%) during the week, while the rate-sensitive two-year yield ended eight basis points (0.08%) higher.
Tariff threats spilled into the beginning of the week, which revived bond market volatility. The recent Treasury yield curve movements reflected this uncertainty, with markets reacting to both threatened and postponed tariffs against key trading partners. Short-term yields rose as markets pushed back expectations for Federal Reserve (Fed) rate cuts, while long-term yields declined on economic slowdown concerns and potential trade tensions, mirroring patterns seen during the first Trump presidency. And while credit markets have remained stable early in his second term, a repeat of Trump 1.0 trade dynamics could bring heightened volatility to credit markets, which enter this period with significantly tighter spreads. Rates felt some relief on Wednesday alongside a weaker dollar, with the 10-year Treasury yield hovering just above the 4.40% level mid-week. However, yields faced upward pressure across the curve following mixed employment data on Friday, which left the Fed’s slower rate-cutting path intact, pushing yields higher with the expectation for steady short-term interest rates until later in 2025.
Commodities and Currencies: The Bloomberg Commodities Index traded higher. West Texas Intermediate (WTI) crude prices fell after failing to rebound from early week losses. Concerns that a trade spat between the U.S. and China would weigh on global growth and energy demand pulled prices lower, and losses accelerated after crude and gasoline inventories rose more than expected. Further, OPEC+ stated it would not change the first quarter's production plans and would gradually restore output in April. However, crude found support after the U.S. ramped up Iranian crude export sanctions and on mixed U.S. unemployment. Meanwhile, gold delivered its sixth consecutive weekly gain thanks to safe-haven buying amid trade tensions. Plus, continued growth in the People’s Bank of China’s (PBOC) gold holdings and a new program for Chinese insurance funds to invest in gold also buoyed prices. In currencies, the dollar ended slightly lower as tariff concerns eased following the delay of levies on goods from Canada and Mexico, despite early week strength. Nonetheless, the dollar moved higher on Friday after President Trump threatened reciprocal tariffs. Elsewhere, the yen strengthened, and the euro weakened slightly against the dollar.
Economic Weekly Roundup
After benchmarked revisions, job growth in the last 12 months was softer than originally reported. Job growth slowed moderately last month as businesses added only 143,000 to payrolls. Most payroll gains occurred in health care and retail trade. Employment declined in the mining and oil/gas extraction industry. The unemployment rate edged down to 4.0% in January, after accounting for the annual adjustments to the population controls. The percent of long-term unemployed individuals edged down for the third consecutive month and is now within range of pre-pandemic rates. The average workweek for all employees on private nonfarm payrolls ticked down by 0.1 hour to 34.1 hours in January.
Friday morning’s report may be considered a Goldilocks report — not too hot and not too cold. In general, labor demand last year was softer than originally reported, but that trend reversed in November and December. An unemployment rate at 4% is considered very low, giving the Fed reason to keep fed funds unchanged in the near term.
Other highlights from a busy week on the economic calendar included an expansion in ISM manufacturing data for the first time since October 2022 after all components rose — although markets did notice prices paid continued to rise as well. In jobs data, JOLTS job openings missed forecasts for December and dipped below November results, while layoffs and quits rates held steady, and ADP employment change indicated employment inched higher in January.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: New York Fed One-Year Inflation Expectations (Jan)
Tuesday: NFIB Small Business Optimism (Jan)
Wednesday: Annual CPI Revisions, MBA Mortgage Applications (Feb 7), CPI (Jan), Real Average Weekly Earnings (Jan), Real Average Hourly Earnings (Jan), Federal Budget Balance (Jan)
Thursday: Annual PPI Revisions, PPI (Jan), Initial Jobless Claims (Feb 8), Continuing Claims (Feb 1)
Friday: Retail Sales (Jan), Import Price Index (Jan), Export Price Index (Jan), Industrial Production (Jan), Capacity Utilization (Jan), Manufacturing (SIC) Production (Jan), Business Inventories (Dec)
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