MARKET UPDATE: Wavering Investor Confidence Leads to Index Decline

• S&P Case-Shiller home price index (20 cities) 

• Consumer confidence 

• PCE index  

Highlights From Last Week 

• Empire State Manufacturing Survey 

• Housing starts and Permits 

• Existing Home Sales 

• US Leading Economic Indicators 

Major indexes declined during the holiday-shortened week. Stocks initially rose, with the S&P 500 reaching record highs on Tuesday and Wednesday. However, sharp losses later in the week erased gains, leading to an overall decline. Market sentiment was influenced by geopolitical and tariff news, including President Trump’s efforts to address the Russia-Ukraine conflict and plans for new tariffs on various products. On Thursday, Walmart’s earnings report contributed to market weakness, as its cautious guidance raised concerns about consumer spending. Walmart shares fell 6.53% following the report, amplifying broader economic worries. 

A turbulent day in the markets ended with significant losses on Friday as investor confidence wavered over Canada’s and the US’s economic stability. The S&P/TSX Composite Index dropped 367.05 points, or 1.4%, closing at 25,147.03. Over the week, the index declined by 296 points or 1.16%. Meanwhile, the Canadian dollar fell 0.3 cents to 70.29 cents US. On the economic front, retail sales rose 2.5% to $69.6 billion in December, with gains recorded across all nine subsectors. The increase was primarily driven by higher sales at food and beverage retailers and motor vehicle and parts dealers. 

European markets were mixed, with the STOXX Europe 600 Index rising 0.26% amid cautious optimism over US trade policy and the Russia-Ukraine conflict. Germany’s DAX dropped 1.00% ahead of elections, France’s CAC 40 slipped 0.29%, Italy’s FTSE MIB gained 1.17%, and the UK’s FTSE 100 lost 0.84%. Eurozone business activity remained just above stagnation, with the Composite PMI at 50.2 for a second month. Germany saw modest growth, while France experienced a sharp decline. The UK’s PMI remained above 50 but weakened slightly, with private sector employment falling sharply due to rising payroll costs and weak demand. 

Business activity in New York State saw a slight uptick in February, according to responses from firms participating in the Empire State Manufacturing Survey. The headline general business conditions index rose by 18 points to 5.7. Both new orders and shipments experienced moderate growth, delivery times lengthened slightly, and supply availability declined marginally. Inventories continued to expand at a modest pace, but employment levels fell. Input prices surged fastest in nearly two years, with selling prices increasing significantly. Although firms anticipate improved conditions over the next six months, optimism about the outlook declined sharply.¹ 

In January 2025, the pace of privately-owned housing permits, and completions showed mixed trends, according to US Census Bureau and HUD data. Building permits for new housing units were issued at a seasonally adjusted annual rate of 1,483,000, marking a slight 0.1% increase from December’s revised figure of 1,482,000 but a 1.7% decline from January 2024’s rate of 1,508,000. Single-family authorizations remained steady at 996,000, while permits for buildings with five or more units were 427,000. Meanwhile, housing starts in January experienced a sharp decline, falling to an annual rate of 1,366,000—a 9.8% drop from December’s revised estimate of 1,515,000 and 0.7% below the January 2024 level of 1,376,000. Single-family housing starts saw an 8.4% decline from December, reaching a rate of 993,000. Construction starts for buildings with five or more units stood at 355,000. In contrast, housing completions surged in January, reaching an annualized rate of 1,651,000. This represented a 7.6% increase from December’s revised figure of 1,534,000 and a 9.8% rise compared to the January 2024 rate of 1,504,000. Single-family completions also showed strong growth, increasing 7.1% from December to 982,000. The completion rate for multi-family buildings with five or more units stood at 652,000. While new housing authorizations and starts showed signs of slowing, housing completions saw notable gains, reflecting an ongoing transition from construction to finished units in the market.² 

For the week ending February 15, the seasonally adjusted initial jobless claims reached 219,000, reflecting an increase of 5,000 from the prior week’s revised figure. The previous week’s total was adjusted upward by 1,000, from 213,000 to 214,000. The four-week moving average stood at 215,250, marking a decline of 1,000 from the previous week’s revised average, which was revised by 250 from 216,000 to 216,250. Meanwhile, the total number of continued claims across all benefit programs for the week ending February 1 was 2,219,008, a reduction of 63,324 from the previous week. In comparison, there were 2,171,213 claims filed during the same week in 2024.³ 

The Conference Board Leading Economic Index (LEI) for the US fell by 0.3% in January 2025 to 101.5, reversing most of the gains from the previous two months. The six-month decline slowed to 0.9% compared to the 1.7% drop in the prior period. The decline was driven by weaker consumer expectations and fewer hours worked in manufacturing, though manufacturing orders stabilized, and the yield spread turned positive for the first time since 2022. Despite the decline, the LEI’s growth rates indicate milder economic challenges ahead, with GDP projected to grow 2.3% in 2025. The Conference Board Coincident Economic Index (CEI) rose by 0.3% in January to 114.3, maintaining steady growth over the past six months. All four components—payroll employment, personal income, manufacturing and trade sales, and industrial production—improved, with industrial production contributing the most for the second straight month. The Conference Board Lagging Economic Index (LAG) increased by 0.5% to 119.3 in January, marking a return to positive six-month growth (0.3%) for the first time since mid-2024.⁴ 

The LEI’s annual growth rate has been improving, signaling milder downside risks to growth 

Existing home sales declined by 4.9% in January, reaching a seasonally adjusted annual rate of 4.08 million. Despite this drop, sales were up 2.0% compared to the same period last year, marking the fourth consecutive month of year-over-year growth. The median sales price for existing homes climbed 4.8% from January 2024 to $396,900, continuing a 19-month streak of annual price increases. Meanwhile, the inventory of unsold existing homes expanded by 3.5% from the previous month, reaching 1.18 million by the end of January—equivalent to a 3.5-month supply at the current sales pace.⁵ 

In February, US business activity growth nearly ground to a halt, as indicated by flash PMI data. The slowdown was primarily driven by a sharp decline in services output, which fell to a 25-month low of 49.7 from January’s 52.9. This contraction overshadowed the manufacturing sector’s stronger performance, where output rose to an 11-month high of 53.8, fueled partly by businesses rushing production ahead of anticipated tariffs. The overall PMI Composite Output Index dropped to 50.4, marking a 17-month low. Despite manufacturing’s relative strength, new order growth weakened significantly, and business confidence for the year ahead declined due to mounting concerns over federal government policies. Cost pressures surged, particularly in manufacturing, as suppliers passed on tariff-related price hikes and wage costs remained high. However, heightened competition in the services sector prevented businesses from entirely passing these costs to consumers, leading to the lowest services inflation in nearly five years. The data, collected between February 10 and 20, reflects a growing sense of uncertainty across the US economy.⁶ 

The coming week will bring key economic data from the US, including PCE price data and revised Q4 GDP, alongside GDP updates from Brazil, Canada, India, Switzerland, Hong Kong SAR, and Taiwan. Additionally, data on eurozone inflation and business sentiment will be released. 

Recent US flash PMI data showed a sharp slowdown in business growth and rising cost pressures. Previously the fastest-growing major developed economy, the US saw its expansion weaken to a 17-month low, with the service sector contracting slightly. Businesses cited uncertainty over government policies, federal spending cuts, and tariffs, contributing to rising prices and the highest input cost inflation in two years. 

While more data this week will refine the US economy outlook, caution is advised when interpreting any signs of manufacturing-driven growth, as concerns over tariffs may have temporarily boosted sales and shipments. Globally, economic growth remains tepid, with near-stalled activity in the Eurozone and UK, though Japan showed a stronger expansion. Japan’s upcoming industrial production and retail sales data will be key in assessing its economic trajectory. 

1. https://www.newyorkfed.org/survey/empire/empiresurvey_overview 
2. www.census.gov/construction/nrc/pdf/newresconst.pdf 
3. https://www.dol.gov/ui/data.pdf 
4. https://www.conference-board.org/topics/us-leading-indicators/press/us-lei-feb-2025 
5. https://www.nar.realtor/newsroom/existing-home-sales-decreased-4-9-in-january-but-increased-year-over-year-for-fourth-consecutive 
6. www.pmi.spglobal.com/Public/Home/PressRelease/c3a10cc3461d4d8aa1758082292e7358 

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

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