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Stocks are declining sharply following downbeat guidance stemming from Walmart’s disappointing fiscal fourth-quarter earnings. The lackluster outlook for fiscal year 2025 arrived after last Friday’s retail sales report depicted the steepest fall in consumption in 22 months. Walmart, a bellwether for consumer spending, raised another red flag, just as mounting trade tensions threaten to drive up the costs of goods. Meanwhile, households have been feeling the pressure of elevated prices, heavy borrowing charges and reduced credit availability, and this earnings report points to the potential for a slowdown sometime this year.
Additionally, this morning’s intraday Leading Economic Index printed a sizeable miss to start the year, erasing most of the progress of the previous two months and adding to the evidence of decelerating activity. The soft prints have produced a bull-flattener move across the yield curve as traders respond by scooping up long-dated Treasurys, gold bars, crude oil barrels, stock index puts and equity volatility calls while selling shares and the greenback. But the key supporters of economic growth—robust capital markets and sturdy employment conditions—are still strong, with equities still up more than 3% year to date while the labor market remains tight.
Labor Market Remains Tight
Labor conditions remained well anchored during the past two weeks, according to this morning’s report on unemployment claims. Both the initial and continuing segments rose, but not to worrisome levels, illustrated by four-week moving averages heading south. Initial filings increased to 219,000 for the week ended February 15, slightly above the 215,000 expected as well as the 214,000 from the prior period. Continuing claims, meanwhile, rose to 1.869 million for the interval closing on February 8, in-line with projections but north of the previous 7-day span’s 1.845 million. The four-week moving averages slid from 216,250 and 1.870 million to 215,250 and 1.863 million.
Leading Economic Index Slips
The Conference Board’s Leading Economic Index started the year off in negative territory following two decent months to end 2024. The 0.3% month-over-month (m/m) slip was worse than the 0.1% drop expected and the prior period’s 0.1% gain. Weighing on performance mostly were shorter hourly work weeks in the manufacturing sector and a deterioration in consumer expectations for business conditions.
Econ Fears Spark Market Decline
Markets are getting clobbered as investors worry that the consumer may be on its last legs. All equity benchmarks are taking sharp losses with the Dow Jones Industrial, Russell 2000, Nasdaq 100 and S&P 500 losing 1.4%, 1.4%, 0.9% and 0.9%. Sectoral breadth is deeply negative with 9 out of 11 segments lower and being dragged down by financials, consumer discretionary and industrials which are lower by 2.1%, 1.4% and 1.3%. Health care and energy shares are the only ones catching modest bids; they’re up 0.4% and 0.1%. Treasurys are seeing strong interest on the back of data reflecting decelerating consumer spending and Secretary Bessent remarking that long-end issuance will remain steady. The 2- and 10-year maturities are changing hands at 4.26% and 4.50%, 1 and 3 basis points (bps) lighter on the session. Softer borrowing costs and narrower expectations regarding US economic outperformance is sending the greenback south; its index is down 57 bps as it depreciates relative to most of its major counterparts, including the euro, pound sterling, franc, yen, yuan, loonie and Aussie tender. Commodities are bullish across the board with crude oil, copper, silver, lumber and gold gaining 1.1%, 0.9%, 0.8%, 0.4% and 0.3%. WTI crude is trading $72.85 on news that President Trump is planning to refill the nation’s Strategic Petroleum Reserve and rumors that OPEC+ will delay its production increase that was scheduled to begin in April.
Uncertainty Can Derail Spending
If uncertainty is the sole cause of households becoming increasingly cautious about their expenditures, a meaningful increase in price pressures will likely weigh further on cash register activity. Some of the critical risks in today’s economy are centered around the potential inflationary effects that could be derived from trade protectionism and restrictive immigration. Indeed, additional commerce expenses threaten to push up goods prices, which was the consistent force driving the disinflation train from 2022. Meanwhile, we’ve had a labor shortage in the States since the first Trump Administration, and mass deportations could result in an uptick in wage pressures that would be somewhat countered by softer shelter charges. Finally, we didn’t see much inflation in Trump’s first term, because tariffs were generally focused on just one major trade partner and paycheck gains were absorbed by robust corporate earnings and buoyant productivity. For now, however, the path toward non-inflationary growth is growing increasingly complex.
International Roundup
Australia Employment Exceeds Expectations
Australia added 44,000 workers in January, blowing past the estimate for 19,400 but declining from 60,000 during the final month of 2024. Full-time hiring was even stronger, at 54,000, compared to the 23,000 additions in the preceding month, according to the Australia Bureau of Statistics. Despite the vibrant hiring, the country’s unemployment rate changed from 4.0% to 4.1%, largely due to the labor force expanding with the participation rate growing from 67.2% to 67.3%.
Korea Consumer Sentiment Climbs
After weathering the storm of political instability and a failed effort to implement martial law, South Korean consumer sentiment is improving, but pessimism is still dominant. The composite consumer sentiment index climbed 4 points to 95.2 this month, according to the Bank of Korea (BOK). A reading below 100 is pessimistic. On a positive note, the gain is the second-consecutive month of strengthening sentiment with January’s score climbing 3.6 points. During the second month of 2025, the current economic situation gauge moved north 4 points to 55 m/m and the economic outlook jumped 8 points to 73. Inflation expectations, furthermore, have eased. South Korea was jolted into widescale confusion in December when President Yoon Suk Yeol declared martial law in December and had the military storm the National Assembly. This sparked an impeachment proceeding against Yeol on charges of mounting a rebellion. The country’s Constitutional Court is currently assessing if he should be removed from office.
The Producer Price Index, meanwhile, climbed 1.7% and 0.6% year over year (y/y) and m/m, respectively. The y/y result matched December’s rate while the m/m score accelerated from 0.3% in December. Agriculture stickers grew 7.9% m/m and coal and petroleum jumped 4%, followed by the 1.2% increase for basic metal products. The financials and insurance activities category and the business support services segment declined 0.5% and 0.3%.
Hong Kong Inflation Rises
In Hong Kong, prices rose 0.4% m/m and 2% y/y in January, with the annualized figure running to a four-month high. The results blew past expectations of 0.3% and 1.8%, while accelerating from December’s 0.1% and 1.4%. Food, housing, utilities, transportation and miscellaneous services drove up cost pressures last month.
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