MARKET COMMENTARY

Below are the economic and market highlights for the week: 

1. Payrolls Weaker Than Expected

   Businesses added 151K to the payrolls in February, missing estimates for 170K. The number, however, was stronger than January’s downwardly revised 125K. Average hourly earnings continued to climb, rising 0.30% for the month. That brought the annual increase to 4.00% for the average worker. Federal government employment, which has dominated the headlines in recent weeks, shed 10K from the payrolls in February. Despite the cuts, government payrolls which include all government jobs at the federal, state, and local levels still rose by 11K. The figure does not account for the full effects of the DOGE-related layoffs. Many of the job cuts happened after the BLS survey reporting period, meaning they won’t be included until the March report. Outplacement firm Challenger, Gray & Christmas earlier this week announced layoffs under DOGE have thus far totaled more than 62K.

2. Services Activity Expands

   The ISM Services PMI increased to 53.5 in February from 52.8 in January. Numbers above 50 indicate expansion while those below signal contraction. New orders and employment pushed the index higher. Prices however continued to pressure margins, rising to a multi-year high.

3. Manufacturing Growth Slows

   The ISM Manufacturing PMI slipped to 50.3 in February from 50.9 in January. An increase in supplier deliveries helped offset a decline in new orders, production, and employment. Inflation also remained sticky in the manufacturing sector with prices increasing to a 3-year high. 

Uncertainty Sinks Stocks

Markets finished off their lows on Friday but still suffered a bruising week. More tariff announcements from the Trump administration increased fears of a spiraling global trade war which risks raising prices for ordinary goods at a time when consumers are looking weary. An increasing number of layoff announcements also rattled investor’s nerves while a government shutdown looms on the horizon absent a funding deal prior to March 14^th. Negative sentiment over the past several weeks has resulted in the S&P 500 declining -6.09% from its all-time high set in late February. The index also managed to breach its 200-day moving average briefly on Thursday, a technical level from which it quickly rebounded. Comments from Fed Chair Jerome Powell, along with a decent, 150K jobs report on Friday, helped to arrest the week’s negative momentum. The speed and magnitude of the current sell-off has unnerved some investors, particularly those exposed to the tech sector. The Nasdaq composite briefly entered correction territory on Thursday, having fallen -10% from its all-time high. The market’s recent performance mirrors the similarly rapid change in US growth expectations. The Atlanta Fed GDPNow real GDP estimate for Q1 2025 has declined to -2.4% from nearly +3.0% just a month ago. The GDPNow estimate is not the Fed’s official forecast. It is purely a quantitative model and as such it is highly sensitive to changes in current data that occasionally prove to be simply outliers. Still, the bond market has wasted no time in responding to the increasingly negative signal with bond traders pushing the 10-year U.S. treasury to 4.30% from 4.80% in January. As we’ve said before, data from late winter often looks lackluster, but with major changes to trade, immigration, regulatory and fiscal policies swirling around, consumers and businesses have grown increasingly cautious. Fortunately, “many indicators show that the labor market is solid and broadly in balance”, according to Powell, and while a March rate cut seems unlikely, a May cut could very well be on the table which markets would applaud.

Certainly the last two weeks have felt substantially more unsettled, but it is important to remember that we had a similar spell just this past September. Furthermore, since 1950, there have been 128 instances where the market declined by over -5%, of which a full 40% of those went on to full corrections (-10%). Yet, not to be glib whatsoever, most of us would be hard pressed to cite a specific timeframe of any of those instances except for maybe July 2002, October 1987 and September 2008. The point is not to provide a history lesson so much as to remind people that the current volatility is a pretty regular occurrence. Treasury secretary Scott Bessent made an interesting observation on Friday when asked about the market’s recent volatility on CNBC’s “Squawk Box”. “Could we be seeing this economy that we inherited starting to roll a little bit? Sure. Look, there’s going to be a natural adjustment as we move away from public spending to private spending. The market and the economy have just become hooked, and we’ve become addicted to this government spending. And there’s going to be a detox period.” Fiscal policy is certainly part of the issue, but so is trade. The sooner the administration can bring clarity to both, the better the chance is that we get through this detox period without having the economy suffer in the process. 

The Week Ahead

CPI, PPI, and Consumer Sentiment 

Let the Good Times Roll

This year’s Mardi Gras celebration in New Orleans, LA, was one to remember with more than a million revelers enjoying the festivities despite a weather forecast that included thunderstorms, winds up to 60 miles per hour, and tornado watches in the afternoon. Organizers were able to shorten parade routes and modify start times to let the scheduled parades and other events take place. 

The tradition of Mardi Gras dates back thousands of years to pagan celebrations of spring and fertility in Rome. It marks the end of Carnival season which begins on January 6th, the date that Christians celebrate the three kings visiting Jesus (also known as Epiphany or Twelfth Night). Mardi Gras eventually spread from Rome to other European countries, including France, Germany, Spain, and England. By the late 1600s, French settlers had introduced the tradition to Louisiana. Mardi is the French word for Tuesday, and Gras means fat. Early Fat Tuesday celebrations featured feasts with a “fatted calf” symbolizing indulgence before the sacrifices of Lent, the 40-day period of fasting and penance between Ash Wednesday and Easter Sunday. According to Smithsonian Magazine, the term Carnival is likely derived from the medieval Latin phrases carnem levare and carnelevarium, which refers to the removal of meat. Mardi Gras/Fat Tuesday is the last day that people would enjoy rich foods, including meat, in preparation for a time of restraint during Lent. 

The first American Mardi Gras took place in 1699 near present-day New Orleans. Over the centuries, the celebration evolved into a massive street festival with elaborate parades, masked balls, and street parties. The tradition gained significant popularity in the 19th century, especially after the founding of the first Mardi Gras Krewe in 1857, which led to the creation of many other Krewes in the following decades. Krewes are historical social organizations that are responsible for constructing the elaborate floats and selecting royalty for the parades. Today, around 70 parades are held throughout the Mardi Gras season in neighborhoods throughout the city. Members of the Krewes ride the floats during the parades, tossing beads and trinkets into the crowds that line the routes. People who catch them are said to have good luck.

While New Orleans is the epicenter of Mardi Gras celebrations in the U.S., the festival is not confined to Louisiana. Cities across the country have embraced the Mardi Gras tradition, hosting their own festivities, and Carnival is celebrated in more than 50 countries around the world, including the world’s biggest carnival in Rio de Janeiro, Brazil. In addition to parades and balls, Mardi Gras is known for its decadent food that includes po’boys, étouffée, gumbo, muffalettas, pralines, and beignets. Among these treats, the King Cake reigns. These cakes are a blend of coffee cake and cinnamon roll and decorated in the Mardi Gras colors of purple (representing justice), green (faith), and gold (power). Hidden inside the cake is a plastic baby. The person who gets the baby will have good luck all year and is expected to bring the next cake or host the next King Cake party.

This week, revelers in New Orleans bid farewell to the season with the traditional phrase: “Laissez les bons temps rouler” which translates to “Let the good times roll.”