Below are the economic and market highlights for the week:
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Consumer Prices Cool in February, but Tariffs Keep Pressure On
The February Consumer Price Index (CPI) report showed inflation eased to 2.80% annually, down from January’s 3.00% and below the expected 2.90% gain. Core inflation, which excludes the volatile food and energy components, also slowed to 3.10%, its lowest level since April 2021. Shelter prices, which have been a significant source of inflationary pressure, continued to ease in February. They were higher by just 4.20% year-over-year (YOY), their smallest gain since December 2021. The softer inflation data, however, brought little relief to Wall Street since tariffs are expected to push up prices in the near term. That, in turn, could limit the Fed’s ability to respond with rate cuts should growth stall.
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Wholesale Prices Hold Steady
Wholesale inflation in February was flat, down sharply from a 0.60% increase in January. Excluding food and energy, core Producer Price Index (PPI) fell -0.10%, the first decline since July. YOY, headline PPI was up 3.2%, down from January’s 3.7% reading. Core PPI also eased from the year ago period, up 3.4%, which was down from January’s 3.8%. A drop in services prices helped offset a rise in goods prices. The latter was driven by the bird flu outbreak which sent chicken egg prices soaring 53.60% month-over-month. The rise in egg prices accounted for two-thirds of the rise in goods prices. However, there may be some relief in sight for inflation weary and egg-loving consumers. In the first week of March, prices for wholesale eggs fell by $1.20, averaging about $6.85 a dozen nationally and down 15% week-over-week.
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America’s Debt Burden Grows: Record $1.14 Trillion Deficit
The U.S. budget deficit reached a record $1.147 trillion for the first five months of fiscal 2025. That topped the previous record of $1.047 trillion from October 2020 to February 2021, a period marked by high Covid-19 relief spending and pandemic-constrained revenues. Note the fiscal period included only one month of the Trump administration in office and nearly four months under the Biden administration. With the White House handoff in January, the Trump administration oversaw a $307 billion February deficit, up 4% YOY. The figure was driven by higher outlays for debt interest, social security, and health care benefits which outweighed receipts from individual income taxes, corporate income taxes, and social security and retirement for the month. The latest budget figures will challenge DOGE to finding ways to right-size the nation’s income statement and balance sheet.
Trade War Concerns Tip S&P 500 into Correction
Equities continued their slide this week, making it three consecutive losing weeks for the S&P 500. This week’s move tipped the index into correction territory briefly on Thursday (down more than 10% from its February 19th record close). Volatility remained high as investors grew increasingly concerned over the spiraling trade war between the U.S. and trading partners Canada and the European Union. The latest salvo came Thursday morning as the Trump administration threatened 200% tariffs on all alcoholic products from the European Union as the bloc dared to impose a 50% tariff on American whiskey. The trade war headlines largely drove the week’s market action even as softer February inflation figures could open the door for the Fed to lower interest rates sooner than expected. The FOMC is widely expected to hold rates steady following its meeting next Wednesday, and investors will be keeping a close eye on Fed Chair Jerome Powell’s post conference economic outlook and comments on tariffs. Fortunately, the week wasn’t a total washout for investors as markets rallied on Friday to cut the week’s loss to -2.27%.
Whenever markets consolidate as quickly as they have recently, the question always becomes “where’s the bottom?” The short answer is no one has any idea, but the one thing you can say is that the more negativity there is, the closer you are to a bottom – and there are plenty of indications of negativity right now. Investor sentiment is now highly bearish, with nearly 60% of retail investors pessimistic about the six-month outlook for stocks. Consumer sentiment has reached levels not seen since November 2022. CEOs and analysts are dialing back earnings estimates and spending plans for 2025. Everybody is talking about tariffs, and while tariffs have not measurably impacted prices, they have negatively impacted expectations for everything from employment, business conditions, inflation, to personal finances. Still, despite all the negativity, there has not been the sort of “what just happened moment” where we’ve felt like the selling is overdone. Yes, markets have corrected, but to be fair, it has done so in reaction to new information – albeit erratic information – that is likely to negatively weigh on growth. The market is repricing based on that information but presuming that the recent surveys of economists are correct, we are very likely to avoid a recession. By and large, recession estimates have only risen about 5% between the beginning of the year and now, despite all the tariff rhetoric and various policy changes. All this to say, this puts a floor in for the market at some point and investor perception has changed far more greatly than the underlying data.
So, what does this all mean with respect to how deep and how long this tantrum can continue? Absent a recession, we believe it is unlikely this correction will turn into a full-fledged bear market. We should note that the last correction in November 2022 did go on to become a bear market, but that was in response to rising interest rates. If we then look at corrections since 1946 in which a bear market was ultimately avoided, we find that it typically takes 133 days for the market to reach the trough and the decline results in a cumulative loss of -14% (or an additional -4% from the point of correction), according to CFRA. The really interesting observation is that it typically took less than 4 months to recover those losses, and since 2008, the S&P 500 has averaged a +15.3% return one year after having entered correction (9 instances), according to Dow Jones Market Data. There are just a tremendous number of factors in play right now and historical averages don’t ultimately capture one’s actual experience. What we can say is that between the amount of negativity swirling around and the historical statistics it seems reasonable to believe we are approaching a bottom – but that assumes we don’t wake up to new rhetoric and policies tomorrow.
The Week Ahead
Week in Review will take a pause from the market moving action for Spring Break. Our next edition returns on March 28th with the latest retail sales, housing, and personal income and spending figures.
Happy St. Patrick’s Day Weekend!
St. Patrick’s Day is Monday, March 17th, and many community celebrations and parades will take place this weekend. If you are one of the thousands of “Irish for a Day” celebrators, keep in mind the following facts and you just might fool the O’Malleys.
Who was St. Patrick?
Like many people celebrating this week’s holiday, St. Patrick was not actually Irish. He was born around 400 A.D. in Britain and kidnapped by Irish pirates — yes, those existed — when he was 16. After years enslaved in captivity in Ireland where he worked herding sheep, St. Patrick escaped by walking nearly 200 miles to Ireland’s coast. He found passage on a ship and returned to Britain. While in captivity, he converted to Christianity, and upon returning home, he became a priest and was later ordained a Bishop. St. Patrick returned to Ireland as a missionary and spent the rest of his life spreading his Christian faith among a pagan Celtic population.
Did St. Patrick banish all the snakes from Ireland?
Much of what is known about St. Patrick mixes legend with the truth, and contrary to what many people may have been told, St. Patrick did not banish all the snakes from Ireland by standing on a hilltop holding a wooden staff. The island nation was never home to any snakes. The story likely symbolizes St. Patrick eradicating pagan ideology from Ireland and the triumph of Christianity.
Why do we celebrate St. Patrick’s Day?
St. Patrick’s Day began as a religious feast day to commemorate the death of the patron saint of Ireland. For most Irish people, the day was originally a modest religious holiday with no parades or public events. The tradition of holding parades to celebrate the holiday began in the U.S. in the 1700s with early Irish settlers to the American colonies. The large influx of Irish immigrants to the U.S. in the mid-19th century led to a proliferation of St. Patrick’s Day celebrations and parades. The concept of a St. Patrick’s Day parade has since been exported back to Ireland.
Why does everyone wear green?
St. Patrick is said to have used the green shamrock to explain the Holy Trinity, and it eventually became a symbol of Irish Christian nationalism and rebellion against English rule. Irish people would wear green shamrocks on their lapels on March 17th to celebrate St. Patrick’s Day as a symbol of their Irish Christian pride. The tradition grew into wearing green clothing. One legend suggests that wearing green on St. Patrick’s Day makes the wearer invisible to leprechauns who supposedly go around pinching anyone who is not wearing green, but that may be American rather than Irish in origin according to history.com.
What’s up with Leprechauns?
Leprechauns come from Irish folklore. They are said to be a type of fairy that uses their magical power to serve either good or evil. In Celtic folktales, leprechauns are cobblers who make or repair shoes for other fairies and hide their pots of gold at the end of rainbows. The only reason Leprechauns are associated with St. Patrick’s Day is because they are Irish.
The Irish have a way with words, and St. Patrick’s Day is a wonderful time to share many of the wonderful Irish good luck sayings with friends and family. Here are some of our favorites:
- May your pockets be heavy and your heart be light, and may good luck pursue you each morning and night.
- May your troubles be less and your blessings be more, and nothing but happiness come through your door.
- Wherever you go and whatever you do, may the luck of the Irish be there with you.
- For each petal on the shamrock, this brings a wish your way—good health, good luck, and happiness for today and every day!
- A good friend is like a four-leaf clover — hard to find and lucky to have.
- May your blessings outnumber the shamrocks that grow and may trouble avoid you wherever you go.
- May your glass be ever full. May the roof over your head be always strong. And may you be in heaven half an hour before the devil knows you’re dead.