Market Update: February 21, 2025

 

Welcome to the Monthly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this month.

We did, very briefly, hit new all-time highs on February 19. But for the most part, the market has been range bound for most of February as investors continue to digest headlines associated with tariffs, inflation, and interest rate cuts or lack-there-of.

The inflation reading for this month was not a good one. The total consumer price index or CPI increased .5% month-over-month and 3% over the last twelve months. This was a break from the previous down trend from late 2024. Core CPI was also up .4% month-over-month or 3.3% over the last year. Both are an acceleration from the January readings.

This resulted in a month-over-month increase in sticky-price CPI, shown in blue here. Notably, full year Sticky-price CPI, shown in orange, has continued it’s downtrend. Zooming in a bit on the graph, you can see the clear break from the trend. However, this isn’t the only time in the last few years that we have seen large spikes on 1-month sticky CPI so this isn’t quite a trend just yet.

We haven’t really seen a significant change in rate cut expectations as a result of this though. Since January, the market has essentially priced in about a 70% chance of at least 1 rate cut. Over the last month this has trended up to an 80% chance including a 40% chance of 1 rate cut by October and a 30% chance of 2 rate cuts by October. Please note that these rate cut expectations are not actual odds of a rate cut but simply the odds the bond market is pricing in. These percent chances are highly inaccurate at predicting actual rate cuts.

The economy still appears to be quite resilient as measured by the high yield bond spread index. This index tends to spike with economic uncertainty like the industrial recession in 2016 and the Covid Pandemic in 2020. Currently, spreads on high yield bonds are near all-time lows implying that bond investors believe there is very little chance of defaults from corporations due to an economic slowdown.

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Sources:

1. FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved February 21, 2025, from FactSet Database.
2. Bureau of Labor Statistics. Consumer Price Index. Charts. 12-month percentage change, Consumer Price Index, selected categories (All items). Updated February 12, 2025. Retrieved from https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
3. Federal Reserve Bank of Atlanta. Research & Data. Sticky-Price CPI. Updated February 12, 2025. Retrieved from https://www.atlantafed.org/research/inflationproject/stickyprice
4. FactSet Research Systems. (n.d.). Policy Tracker (markets). Retrieved February 21, 2025, from FactSet Database.
5. Ice Data Indices, LLC, ICE BofA US High Yield Index Option-Adjusted Spread [BAMLH0A0HYM2], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/BAMLH0A0HYM2, February 24, 2025.

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