With the constant flurry of market fluctuations and economic data releases, it’s easy for any investor to get caught up in the noise. At Leisure Capital Management, we focus on the things that matter most to make wise, informed decisions that help you stay on track toward your financial goals.
Right now, one of the biggest factors shaping the investment landscape is inflation and how the Federal Reserve will respond. This week, all eyes are on the Core PCE Price Index report (due Friday), a key measure of inflation that could influence the Fed’s next move. At the same time, economic data is painting a complicated picture—according to Tuesday’s Conference Board report, consumer spending delivered its largest monthly decline in four years, while signs of slowing business activity continue to escalate. Both of these measures suggest uncertainty ahead.
Here’s a brief breakdown of what we’re seeing across the economy, fixed income, and equities—and what it means for you.
Economy: growth, inflation, and what to watch…
Inflation remains stubbornly above target, resulting in the Fed’s cautious approach to interest rate cuts so far this year.
January inflation came in slightly hotter than expected, with Core CPI at 3.3% year-over-year (vs. 3.1% expected).
Producer prices (PPI) also rose slightly above estimates, adding to inflation concerns.
US economic data softened, with business activity slowing, particularly in the services sector.
The US PMI Index dropped to 50.4, its lowest level in 17 months—an early indicator that business growth may be cooling.
Unemployment claims rose slightly to 219,000, but the labor market remains resilient overall.
Consumer sentiment is showing signs of strain, with consumer confidence dropping to 98.3 from 105.3 in January, and the University of Michigan survey reporting a 19% drop in buying conditions for durable goods, largely due to tariff concerns.
Fixed Income: finding opportunity in interest rate shifts…
Interest rates continue to shift, but the overall environment remains stable for investors.
US Treasury yields moved lower last week, with 10-year yields dropping to 4.43% and 2-year yields descending to 4.20%. Despite the decline in yields last week, interest rates are expected to remain rangebound in 2025 as the Fed approaches the end of the cutting cycle.
The economic growth outlook remains steady, supported by strong consumer finances and solid business investment, which helps keep corporate defaults low.
Risk premiums may widen, meaning there could be more attractive entry points for taxable fixed-income investments in the coming months.
While the bond market remains positive overall, some spread sectors underperformed Treasuries last week, reflecting mild investor concerns about future economic growth. Focusing on high-quality credit and reliable income will be key in the coming months.
Municipal bonds are expected to remain strong this year due to supply/demand dynamics.
Equities: strength amid uncertainty
Despite the recent pullback from all-time highs, the stock market is holding up reasonably well as another solid earnings season comes to a close.
Earnings growth for Q4 2024 is tracking at 15.7% and sales growth at 4.9%, with most companies reporting better-than-expected profits and revenue.
All sectors except Energy have exceeded their growth estimates.
Full-year 2025 earnings per share (EPS) is projected to grow 10.5%, slightly above the 9.7% growth rate expected for 2024.
2026 earnings growth is expected to accelerate, though potential tax policy changes could impact projections.
The outlook for ‘Magnificent 7 Stocks’ (Apple, Microsoft, Nvidia, Amazon, Google, Meta, Tesla) has declined slightly, with projected earnings growth now in the 13-21% range instead of the prior 17-21%. Nvidia’s earnings report today (February 26) is likely to serve as an indicator for future performance in the tech sector and the market as a whole.
Overall, the stock market remains in a healthy position, supported by solid corporate earnings and resilient economic fundamentals.
Investing with confidence
The media loves to raise alarm bells about the state of the market—no matter what the news may be. Rather than getting distracted by the noise, we urge you to stay informed and trust that our team is here to help grow and protect your assets, strategically optimizing our portfolios to adjust to market fluctuations as they happen.
Smart investing stays focused on the long term. As always, if you have any questions at all about your portfolio, please reach out. We are here to help!
