Daily Commentary
Commentary prepared by Alloya Investment Services, a division of the wholly owned CUSO of Alloya Corporate Federal Credit Union. Alloya Investment Services is a leading broker/dealer consultant to credit unions.
Friday, February 21, 2025 at 8:00 am CT
Commentary prepared by Tom Slefinger, Market Strategist
Market Indications
Other Market Indicators
| Market Indicators | ||
|---|---|---|
| 2s/5s Tsy Spread | 0.07 | 0.00 |
| 2s/10s Tsy Spread | 0.22 | -0.01 |
| 2s/30s Tsy Spread | 0.46 | -0.02 |
| DJIA-30 | 44,176.65 | -450.94 |
| S&P-500 | 6,117.52 | -26.63 |
| NASDAQ | 19,962.36 | -93.89 |
| Dollar Idx | 106.67 | +0.30 |
| CRB Idx | 316.58 | -0.05 |
| Gold | 2,932.76 | -6.37 |
Daily Commentary
Recap – You don’t need to be a rocket scientist to see that the stock market rally is struggling, and the major averages have basically done nothing since the immediate aftermath of the November election. Yesterday, the S&P 500 and Nasdaq Composite pulled back from record highs. The small caps are in disarray, with the Russell 2000 sliding -0.9% in yesterday’s action.
In the wake of the horrible January retail sales report, Walmart fell 6.5% (one of its worst days since 2023) on squishy-soft guidance. “Wallets are still stretched ” so said Walmart’s CFO John David Rainey, in a blow to the resilient-consumer narrative.
Treasuries were bid yesterday with the benchmark 10-year Treasury yield declining 3 basis points to 4.50%. The long bond closed 2 basis points lower at 4.74%. At the front end, twos and fives closed lower at 4.27% and 4.34%, respectively.
Elsewhere in the foreign exchange (FX) space, the DXY dollar index rebounded + to 106.30. Gold was down -0.7% to $2,932 per ounce. Despite today’s round of profit-taking at the record highs, gold is still headed for an eighth consecutive weekly advance (more than +1.0% for the week) as global exchange-traded funds (ETF) holdings have swelled to their highest level in thirteen months (after the strongest inflow this past week in two years).
Source: Bloomberg
Reminder: As I have repeatedly stressed over the years, the Bureau of Labor Statistics (BLS) payroll data is absolute BS. To drive home the point, yesterday the official Quarterly Census of Employment and Wages (QCEW) data was released through to September 2024. The data confirmed the massive discrepancy between this all-encompassing survey and the non-farm payroll data.
To wit: Over the year to last September, this Census report showed +1.3 million jobs having been created compared with +1.98 million from the non-farm payroll survey. In other words, a +680,000 overstatement from the payroll survey (that everyone trades over) or nearly +60,000 per month!
Surely, Federal Reserve Chair Jerome Powell and Co. must be aware of this discrepancy even if they don’t want to talk about it publicly since the mantra today is “higher for longer” until policy clarity is restored and the effects of the tariff hikes are fully assessed.
Going forward, the key, as always, is the consumer which will be negatively impacted from four channels: 1) a lower savings rate (it was over 8% during the Trump 1.0 tariff war, twice today’s level); 2) the impact of the uncertainty on the labor market as hiring plans follow capex intentions lower; 3) the net effect of the tariff spike on inflation; and 4) the impact on real work-based incomes. Thus, the consumer is hit by a quadruple whammy!
Meanwhile, the Fed is sidelined. So the question is, what stops the economy from going into recession? Even if it doesn’t, the overall result is a disinflationary output gap, which should be very beneficial for bond investors who extend duration during all this turmoil.
To end an uneventful week of economic data, we get the latest readings from S&P Global for the manufacturing and services sectors as well as the University of Michigan's final sentiment reading of the month.
Have a great weekend!
Economic Calendar
February 18 - 21, 2025: The Week Ahead
Future Fed Expectations
Source: Bloomberg
| Select Probabilities based on the Futures | |
|---|---|
| Probability of Fed Funds rate CUT on March 19, 2025 | -02% |
| Probability of Fed Funds rate CUT on May 7, 2025 | -16% |
**All quoted rates are indications and are subject to change without notice.
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