The Setup & Where to Focus

Stocks enter the final week of February on shaky footing, at least according to sentiment surveys and the rash of negative macro headlines surrounding President Trump’s economic policies. Investors need to remember that while the S&P 500 was down 1.7% last week, it’s still up on the year, and we have seen strong returns across international markets and asset classes—that's something diversified macro investors should appreciate. 

Among the best-performing country ETFs is the iShares China Large-Cap ETF (FXI), which has returned 19% so far in 2025. That has helped emerging markets rally more than 6%, compared to the US stock market’s 2.1% return. Ex-US developed markets are up almost 8% YTD less than two months into the year, with big gains registered in Europe. A weaker dollar has played a role, too; the greenback has lost about 3% relative to a basket of currencies since peaking in January. Gold has surged, up almost 20% on the year, but bitcoin has wobbled under $100,000.

Amid that generally favorable backdrop for diversified macro investors, concerns (we won’t call them fears just yet) have arisen about growth and inflation. The 5-year breakeven inflation rate is within earshot of a two-year high, now above 2.6%, while the 10-year Treasury yield closed decisively below the 4.5% mark last week. Early calls for Q1 US GDP growth are pinned around 2% among Wall Street economists, lower than the average expansion pace of the past few years.

All the while, corporate earnings have come in very strong. Q4 EPS is seen rising about 17% from the same period of 2023—the best growth rate since the fourth quarter of 2021. A weaker dollar, lower interest rates, cooling wage growth, and tame oil prices could set the stage for more big profits as 2025 wears on. Last week, however, Walmart’s (WMT) cautious guidance sent negative ripples across markets; we’ll see what NVIDIA (NVDA) delivers and hear what CEO Jensen Huang has to say when the chip designer reports Wednesday night.

The focus this week will be on retail and big tech earnings-wise and then GDP & PCE inflation data on the macro front. Still three weeks out from the next FOMC meeting, there will be a steady diet of Fedspeak to close out February. Housing data, Consumer Confidence, Durable Goods, and Chicago PMI are key data points to monitor.

Weekly Calendar Look Ahead

Digging into the macro data deck, Monday is light with just a pair of regional activity surveys and Treasury auctions—no fireworks are expected. More time will be spent analyzing Berkshire Hathaway’s (BRKA) quarterly report from last Saturday.

Tuesday features Apple’s (AAPL) annual shareholder meeting, but before that comes Home Depot (HD) earnings, the December Case-Shiller Home Price Index, and The Conference Board’s Consumer Confidence survey for February. Last week’s soft University of Michigan Consumer Sentiment report included a 30-year high in long-run inflation expectations, but we have pointed out that UMich is clouded by politics these days, so it’s best to dismiss it. The Conference Board’s survey is more geared to households’ feelings about the jobs picture, so it is a more accurate vibes barometer. At the business level, we’ll get Richmond and Dallas Fed PMI data, and the Fed’s Logan, Barr, and Barkin have speaking engagements.

Wednesday is a light macro data, with New Home Sales for January being the highlight. Much ink has been spilled regarding seasonal quirks in early-year macro updates, and with dim real estate data points, a soft New Home Sales report would not be surprising. Moreover, Toll Brothers (TOL) issued a weak profit report and outlook last week as its inventory grows. Retailer earnings hit in the morning, Amazon (AMZN) holds a product event, and NVIDIA reports quarterly results after the bell.

The big data rolls in late in the week. Thursday’s slate starts with Durable Goods orders for January—the consensus calls for a 1.3% sequential increase with Durable Goods ex-Transportation seen rising just 0.4%. The headline figure fell hard to end 2024, so there may be a bounce back. Also at 8:30 a.m. ET, the second look at Q4 GDP hits the tape. We don’t expect big surprises here—a 2.3% annualized growth rate is the consensus, driven by robust consumer spending. Within the report, Core PCE Prices is likely to print 2.5%, above 2.2% from Q3, but unchanged from the initial number several weeks ago. Pending Homes Sales for January, Fedspeak, and the Kansas City Fed PMI are minor volatility catalysts. Finally, we expect another uneventful Initial Jobless Claims update, but we are curious what the DC-area tally will be in light of DOGE’s efforts. There was a surprising jump in initial claims within the Beltway in last week’s report, but we need confirmation from a few weeks’ worth of data to call a trend. Furthermore, the assumption is that government workers would receive ample severance packages, so they would not be eligible for unemployment benefits right away.

Friday features an inflation update via the January PCE Price Index. With CPI and PPI out in the open, we have a good beat on what this will be. The median estimate among 13 estimates is for a 0.34% headline rise with a 0.28% increase in the core rate, bringing the year-on-year figures to 2.5% and 2.6%, respectively. The Fed targets 2% headline PCE inflation, so there’s still work to do on the consumer-price front. Hot numbers would send yields back up while cool figures could bring a Fed rate cut back in play toward the middle of the year; we expect the FOMC to be on hold at its March 19 and May 7 meetings. Chicago PMI just after the opening bell rounds out a busy stretch for regional survey data.

Fiscal Policy Framework

The March 14 government funding deadline is quickly approaching. Last week, Senate Republicans passed their budget resolution, setting the stage for a reconciliation package that would be potentially filibuster-proof. We’ll see if GOPs in the House, who prefer a two-bill approach, come together to draft their version this week. President Trump insists on one “big, beautiful” bill, but the chambers will have to unite on a budget resolution either way.

The betting markets show about a 60% chance of a government shutdown at some point this year, though the implied chance of one occurring in March is in the 30%-40% range, in our view. Historically, markets have looked past short-term government disruptions, but it will make for interesting political theater. This time around, the Democrats could use a shutdown as a bargaining weapon against Trump, Elon Musk, and DOGE.

Risks and Opportunities

We’ve called out solid price action in the Health Care sector and Real Estate throughout the year. We continue to like those areas on valuation and with emerging momentum. Falling interest rates would be a boon for the property sector, now among the cheapest in the market. Though UnitedHealth Group (UNH) was rocked by a DOJ probe on Medicare Advantage billing practices, other large-cap pharma names have stepped up.

We see downside risks in some of the high-flyers of the last handful of months. Names like Palantir (PLTR), AppLovin (APP), Robinhood (HOOD), and Reddit (RDDT) have come off the boil. Heading into last week, the momentum factor had been leading across timeframes (from one week to one year), and when that unwinds, it can be a quick decline. 

For the broader market, there has been resilience on dips so far in 2025. We expect that to generally persist, though the final week of February has been historically weak for the S&P 500. March and April are two of the better months—the median return over the past 15 years is 3.2% and 1.0%, respectively. Interestingly, stocks have been down each Friday of Trump’s second term so far.

Quick Hits

• Six of the eight Magnificent tech-related stocks are down more than 10% from their respective 52-week highs

• The VIX has ranged between 14 and 20 on a closing basis all year

• The 10-year yield settled at its lowest level since December 16 last week

• The Russell 2000 small-cap index is now negative for 2025

• The global 60/40 portfolio touched an all-time high last Thursday