Looking for clues from FOMC minutes

February 18th, 2025

RECAPPING LAST WEEK

Despite hotter-than-expected inflation reports and the threat of additional tariffs, U.S. equity indices finished the week near record highs as interest rates trended lower. The Nasdaq Composite index rose more than 2.5%, while the S&P500 gained 1.5% and the Russell 2000 was flat. Nine of eleven S&P500 sectors posted gains, with technology leading at +3%. Crude oil prices were slightly lower in a volatile week as traders weighed the implications of tariffs, Russia-Ukraine peace talks, and U.S. plans to squeeze Iran’s oil exports. Gold futures edged closer to $3,000 per ounce before settling slightly higher at $2,897. U.S. Treasury yields initially jumped after Wednesday’s CPI report, which revealed higher increases than expected in January—a common story in recent years. Headline inflation rose 0.5% MoM and 3% YoY, while core CPI accelerated by 0.4% MoM and 3.3% YoY.

In Congressional testimony, Fed Chair Powell said that the inflation report reinforced the idea that progress has been made, but that rates will remain restrictive until the 2% target is reached. Fed funds futures were only pricing in one interest rate cut for this year at week’s end. Yields retreated after Friday’s retail sales figures, which showed a monthly decline of 0.9%. Seasonal weakness has been typical in January, with winter weather and post-holiday consumer spending declines to blame. Other factors aided the softening in yields. Despite the higher CPI and PPI readings, some economists argued that January’s core PCE index—the Fed’s preferred measure that is to be released later this month—is likely to tick lower. That is because many PPI components like medical services, airfare, and auto insurance were much lower, providing a welcomed readthrough to core PCE.

Meanwhile, after announcing 25% tariffs on steel and aluminum imports, the White House said it plans to introduce reciprocal tariffs on all U.S. trading partners but delayed their implementation. Although tariff news has sparked recent market volatility, this week’s reaction suggested that investors’ perceptions may be starting to shift as negotiating windows open. In other economic news, U.S. small business optimism declined last month, as owners commented on persistent hiring challenges, while the uncertainty index surged. Industrial production rose overall last month due to higher utilities usage from cold weather, but a sharp decline in automobile output restrained manufacturing. Overseas, the British economy grew by just 0.1% in Q4 after being flat the prior quarter. The results beat expectations, but growth is forecasted to remain sluggish for quite sometime as businesses deal with higher costs. In China, consumer inflation rose for the first time since August, boosted by spending from the Lunar New Year holiday. However, factory price deflation extended into a 29th straight month, falling 2.3%.

THE WEEK AHEAD

U.S. markets were closed Monday for the Presidents’ Day holiday. This week’s economic calendar features FOMC meeting minutes, U.S. housing data, and the latest global flash PMI readings. In its most recent statement, the Fed was optimistic on the economy and labor market and said it is in no rush to cut rates further. There doesn’t seem to be much dissent on the committee towards this approach, especially while inflation risks still seem skewed to the upside.

Nevertheless, Wednesday’s meeting minutes will be scrutinized for further clues on the direction of monetary policy. After a brutal year for the U.S. housing market, the first update for 2025 arrives with starts, permits, and existing home sales for January. Keep an eye on Friday’s revised consumer sentiment report as the inflation expectations portion caused quite a stir in the preliminary release two weeks ago. Retail bellwether Walmart will report earnings on Thursday before the market opens, while the rest of the U.S. calendar includes the Empire State and Philly Fed manufacturing indices.

On the international side, the Reserve Bank of Australia is expected to deliver its first interest rate cut of this cycle on Monday evening as inflation has shown signs of easing. The UK has CPI, retail sales, and employment data on its agenda. Finally, Japan’s preliminary Q4 GDP and National Core CPI readings could move the needle on expectations for the Bank of Japan’s next rate hike.

(source: Schwab)

Definitions

Annualized Return: The rate at which an investment grows each year over the period to arrive at the final valuation.
Bear Market: A decline of at least 20% from the market’s high point to its low.
Beta: A measure of how an individual asset moves when the overall stock market increases or decreases.
Correlation: A measure of the extent to which two variables are related.
Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend
payments divided by its market capitalization, assuming the number of sharesis constant.
Developed Markets: A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness
to foreign ownership, ease of capital movement, and efficiency of market institutions.
Emerging Markets: A country that has some characteristics of a developed market but does not fully meet its standards. This includes markets that may become
developed marketsin the future or were in the past.
GrowthFactor Stocks: Growth stocks are companies expected to grow sales and earnings at a fasterrate than the market average.
LargeCap Stocks: Shares of publicly traded corporationswith a market capitalization of $10 billion or more.
LTM: An acronymfor”Last Twelve Months”or the past one year.
NTM:An acronymfor”Next Twelve Months” or the next one year.
Price Return: The rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, not including
income generated in the form of interest or dividends.
Total Return: Return on a portfolio of investmentsincluding capital appreciation and income received on the portfolio.
Small Cap Stocks: Small-cap stocks are shares of companieswith a market capitalization of less than $2 billion.
Standard Deviation: In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates the
valuestend to be close to the historical average of the data set, while a high standarddeviationindicatesthe current value is outside of the historical average range.
Value Factor Stocks: Stocksthat are inexpensive relative to the broad market based on measures of fundamental value (e.g., price to earnings or price to book).

Disclosures and Legal Notice

DISCLAIMER:

Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks and options may
fluctuate, and, as a result, clients may lose more than their original investment. The impact of seasonal and geopolitical events is already factored into market prices. The
highly leveraged nature of futures trading means that small market movements will have a great impact on your trading account and this can work against you, leading to
large losses or can work for you, leading to large gains.

• If the market moves against you, you may sustain a total loss greater than the amount you deposited into your account. You are responsible for all the risks and financial resources you use and for the chosen trading system. You should not engage in trading unless you fully understand the nature of the transactions you are entering into and the extent of your exposure to loss. If you do not fully understand these risks you must seek independent advice from your financial advisor. All trading strategies are used at your own risk.

• Any content on TradesTrending.com should not be relied upon as advice or construed as providing recommendations of any kind. It is your responsibility to confirm and decide which trades to make. Trade only with risk capital; that is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to meet your financial obligations. Past results are no indication of future performance. In no event should the content of this correspondence be construed as an express or implied promise or guarantee.

• TradesTrending.com is not responsible for any losses incurred as a result of using any of our trading strategies. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Information provided in this correspondence is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

• Disclaimer

• None of the content published on TradesTrending.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.