The second half of February has seen stock indices tumble and bond markets rally. The Nasdaq has led the recent decline (green) while the S&P 500 (pink) is barely negative and non-US stocks (red) remain up over 6% so far this year. Corporate bonds (light blue) and US treasuries (dark blue) have been beneficiaries of nervousness in the stock market.
Although recent inflation numbers have been in line with expectations, personal income rose more than expected in January, up 0.9% versus an expected 0.4% rise. This could be a little worrisome for future inflation, but the bigger concern is that the increased income did not translate to more consumer spending. Analysts expected an increase in spending of 0.1% in January, but instead saw a decrease of -0.2%. More household income and less spending resulted in an uptick in the personal savings rate.
Financial planners like to see households saving money, but politicians do not because decreased spending could ultimately lead to slower economic growth. Also, a rising savings rate can reflect nervousness and uncertainty among consumers about the future. This seems to be the case as The Conference Board reported this week that consumer confidence plummeted in February, falling from 105.3 in January to 98.3 this month, the biggest monthly decline in more than four years. Economists expected a slight decline to 103.
https://www.cbsnews.com/news/consumer-confidence-index-plummets-february-2025/
https://www.conference-board.org/topics/consumer-confidence
These, and other factors, have caused the Atlanta Fed to drastically lower their expectations for 1st quarter economic growth from near 3% at the beginning of the month to -1.5% today. This is a big decline so it will be interesting to see what their next update (March 3) shows.
https://www.atlantafed.org/cqer/research/gdpnow.aspx
Still, the S&P 500 remains very near its all-time high.
Even so, our tactical model has become more conservative in light of these developing trends.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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