NEWS
What Happened Last Week
US unemployment claims came in slightly better than expected at 223,000 versus 224,000.
February’s existing home sales rose to 4.26 million, well ahead of the expected 3.95 million.
The Philadelphia Fed business survey fell but came in better than expectations.
Consumer sentiment continued to fall for the third consecutive month, down 22% from December 2024.
Industrial output came in well above expectations in the US for February and across Europe for January.
Year-ahead and longer-term inflation expectations both rose significantly among US consumers, the largest month-over-month increase since 1993.
US Global PMI (Purchasing Managers Index) fell from 52.7 to 51.6 in February, indicating the slowest pace of expansion in the US private sector since April 2024. Both manufacturing and service sectors were above 50, indicating continued growth is likely.
How I See It
The biggest driver of this recent market correction has been the inability for investors to confidently predict future earnings potential of publicly traded companies due mainly to tariff concerns.
Fundamentally, the economic data isn’t spectacular. It’s showing signs of slowdown. But it’s still showing likelihood of continued growth.
We’re still a few weeks away before recent downward pressure becomes potentially more serious.
Remember Oct-Dec 2018? A correction spurred largely by trade war concerns with China caused a pattern to develop which looks very similar to the one we see today. But it turned around in less than three months.
What could turn this into a bear market? Unemployment and inflation both pick back up significantly. But as of now, the Federal Reserve’s econometric data shows that long, entrenched expectations of inflation still remain at healthy levels of slowing as the years go by.
Healthy long-term expectations are important for how inflation actually plays out in real time, and that’s a good sign.
All in all, there don’t appear to be strong signs of a deep upcoming recession. While one could occur in the months ahead, a repeat of something like 2008 at this time is highly unlikely.
Momentum still favors an up-trending market, both according to daily moving averages as well as the monthly RSI (Relative Strength Indicator). But daily volatility remains likely to be higher than usual in the days ahead.
The market really needed this slow down. I would be concerned if this had not happened. The market can still end this year positive without being inflated, but it needed this correction to help keep it in check.
We’ll stay tuned over the next few weeks to determine whether it appears the trend is shifting. At this time, however, it remains a correction that is likely to be over within a few months.