Investors are going to need some of their concerns around trade or inflation to lift in order for the stock market to rally again. Stocks haven’t moved much since the start of the year. Even with an onslaught of policy developments and fears of sticky inflation rocking the market in 2025, a healthy economy underpinning strong earnings growth has mostly helped traders shrug off their concerns. The Dow Jones Industrial Average and Nasdaq Composite are about 1% off their recent records, while the S & P 500 is just 0.2% off its own milestone. “You’ve got cyclical leadership. Earnings are really strong. You’re having a great Q4 season,” said Ross Mayfield, investment strategy analyst at Baird. “So, you’re just looking for the catalyst to spark a move higher.” Clarity around tariffs or inflation could be just thing to break stocks out of their muddle. .SPX 5D mountain S & P 500 Softer inflation One potential upcoming catalyst could be the personal consumption expenditures price index, set to release Feb. 28, that investors hope will confirm what they suspect after Thursday’s producer price index —that a softening in some of the underlying components means inflation is coming down more than the headline number suggests. A weaker PCE number could raise investors’ expectations that the Fed may wind up lowering interest rates more than the one quarter-point cut markets are currently pricing, according to Baird’s Mayfield. It could also spark a move down in Treasury yields, relieving pressure on the equity markets. “I think there’s potential for a choppy rest of February,” said Mayfield. “But, to the extent that PCE could beat to the downside, and bring a few Fed rate cuts forward in investors’ minds, that could be a nice spark for equities into a new month.” Mayfield expects the Fed could cut interest rates two or even three times this year. Trade policy Some further confirmation that President Donald Trump is wielding tariffs mainly as negotiating tools would also be a welcome reprieve for traders, who remain concerned that the inflationary impact of potential levies will offset any gains from deregulation. “There’s a bit of a tug of war there, clearly,” said Rhys Williams, chief strategist at Wayve Capital. “So, I do think some sort of break that Trump really does use tariffs just for bargaining chips and nothing that dramatically happens would be a positive from a macro point of view.” However, Baird’s Mayfield noted that traders will likely be kept on their toes in regards to trade policy, and will have to learn to live with the uncertainty around the president’s rhetoric on trade. “I don’t ever think that the market is going to get the clarity that they really want from the Trump administration on trade,” Mayfield said. “I don’t think that the administration is going to come out and say, you know, ‘hey, we’ve changed our minds, we’re pro free trade,’ or, ‘hey, these are the rules of the game for the next four years.'” “In many ways, the uncertainty and the kind of chaos, for lack of a better word, is part of the strategy,” he added. Resilient market Regardless of the uncertainty, many traders remain confident stocks can continue to climb to fresh heights this year, even if they do not make the eye-watering gains of 2023 and 2024. Wells Fargo Investment Institute noted this week that the likelihood of a “three-peat,” or a market that advances more than 20% three years in a row, is rare, having happened only one other time in the history of the S & P 500. Still, investors expect that the market’s resilience thus far this year is encouraging. “There’s so much that you know should really be holding the market back,” said Mark Malek, investment chief at Siebert. “And it still isn’t.” Week ahead calendar All times ET. Monday, Feb. 17 9:30 a.m. Philadelphia Reserve Bank President Harker speaks in “Global Interdependence Center Central Banking Series Conference” with the University of the Bahamas Markets closed for President’s Day holiday. Tuesday, Feb. 18 8:30 a.m. Empire State Index (February) 10 a.m. NAHB Housing Market Index (February) Earnings: Arista Networks , Occidental Petroleum , Cadence Design Systems , International Flavors & Fragrances , Devon Energy , CoStar Group , Vulcan Materials Wednesday, Feb. 19 8:30 a.m. Building Permits preliminary (January) 8:30 a.m. Housing Starts (January) 2 p.m. FOMC Minutes Earnings: CF Industries , Analog Devices , Trimble Thursday, Feb. 20 8:30 a.m. Continuing Jobless Claims (02/08) 8:30 a.m. Initial Claims (02/15) 8:30 a.m. Philadelphia Fed Index (February) 10 a.m. Leading Indicators (January) Earnings: Live Nation Entertainment , Insulet , Booking Holdings , Akamai Technologies , Walmart , Hasbro , EPAM Systems , Quanta Services Friday, Feb. 21 9:45 a.m. PMI Composite preliminary (February) 9:45 a.m. S & P PMI Manufacturing preliminary (February) 9:45 a.m. S & P PMI Services preliminary (February) 10 a.m. Existing Home Sales (January) 10 a.m. Michigan Sentiment final (February)
The next catalyst for the stock market rally could be some relief around trade, inflation
Feb 14, 2025
