The S&P 500 (Index: SPX) spent most of the trading week ending on 28 February 2025 on a downward trajectory. Most of that was driven by bad news, the worst of which was delivered on Thursday, 27 February 2025. Nvidia (Nasdaq: NVDA) turned good earnings, but the company's outlook for the topline computer chips that are powering the Artificial Intelligence boom was less positive, which worked to deflate some of the AI bubble the US stock market has been riding, which affects both technology stocks and energy stocks given the industry's power requirements.

On top of that disappointment, several Federal Reserve officials spent the day harping about how they didn't see any reason why they might act to cut short term interest rates in the U.S. anytime soon. That gloom worked beat down interest-rate sensitive stocks in the market.

But worse news arrived on Friday, when the Atlanta Fed's GDPNow tool's projection of what real GDP growth will be in the 2025-Q1 plunged from the preceding week's +2.3% annualized growth rate to -1.5%. Suddenly, bad news became good for stock prices, because even though the change indicates the economy will shrink during 2025-Q1, that prospect means the Fed will almost certainly have to cut U.S. interest rates. That prompted interest rate-sensitive stocks to rise.

That rise however was interrupted by the Ukrainian circus performance in the Oval Office on Friday afternoon, which initially caused stock prices to reverse their gains and drop because of geopolitical concerns before investors realized nothing bad had happened and the whole thing was just a minor geopolitical noise event. Stock prices came storming back and by the end of the day, they sat at 5,954.50, about one percent below where they ended the previous week.

That's also, aside from the echo of a short-term noise even from a year ago, right about exactly where the dividend futures-based model says they should be assuming investors are focusing their attention on the upcoming future quarter of 2025-Q2. Here's the latest update of the alternative futures chart showing that outcome:

There's more to back that assessment. The plunge in the Atlanta Fed's GDP Nowcast for 2025-Q1 was driven by two negative contributions involving January 2025's economic data. The larger contribution was a decline in net exports, which dropped following the Biden-Harris administration's restrictions on advanced semiconductors exports that went into effect at the beginning of the year. Exporters had been trying to ship out as many of these products as they could before the end of 2024, where the trade restrictions all but ensured outgoing shipments of these high-value exports would crash in January. The only question was by how much.

Meanwhile, a smaller contribution to the forecast GDP for 2025-Q1 came from reduced personal consumption expenditures, although personal incomes rose and personal savings rose sharply in January. This latter contribution may be tightly concentrated among highly paid federal government workers and contractors, including those at non-governmental organizations and may be directly tied to their realization their jobs are no longer safer than those of every other industry in the U.S. Workers in the government sector appear to be doing what workers anticipating layoffs have historically done, cutting back spending before they might be laid off, which explains why personal savings rose.

In other words, the bad news of the GDP forecast is not as bad for the U.S. economy as a whole as the forecast GDP decline might make it appear and may be beneficial for many of those other parts of the economy because of the increased prospect for more interest rate cuts in 2025.

Speaking of which, the negative economic data prompted a major change in the expectations of future rate cuts in 2025. The CME Group's FedWatch Tool still projects a quarter point rate cut when Fed meets on 18 June (2025-Q2), but the big change took place in the expectations for following months. The FedWatch tool now anticipates rate cuts at 12-week intervals through 2025, with quarter point rate cuts forecast for 17 September (2025-Q3) and 10 December (2025-Q4).

At this point, stock prices are lower than they might otherwise be in this scenario because investors are focusing on the nearer term future quarter of 2025-Q2. If they shift their focus out to more distant future quarters, stock prices may rally in the short term.

But whether that happens will depend upon what's in the random onset of new information. Here is the flow of market-moving headlines that arrived in the newstreams of the final trading week of February 2025:

Monday, 24 February 2025

• Signs and portents for the U.S. economy:
  • Oil settles higher on fresh Iran sanctions, Iraq commitment to OPEC+
  • Apple plans $500 billion in US investment, 20,000 research jobs in next four years
  • US manufacturers see higher metal prices as tariffs near
    • Iron ore snaps four-day rise due to more duties on Chinese steel
• Fed minions told what's expected of them, coincidentally it's what they failed to do in 2021-2022:
  • Fed expected to respond strongly to inflation, job market conditions, research shows
• Bigger trouble, stimulus developing in China:
  • China says rising food demand requires production boost
    • China's pork consumption has no more room to grow, says researcher
  • China plans to ban fines without legal basis on private companies
  • USTR proposes charging Chinese ships up to $1.5 million to enter US ports
• Bank of Japan's interest rates are still negative after adjusting for Japan's rising inflation:
  • Get real, BOJ rates are deeply negative
• ECB minions worried they might be sleepwalking with Eurozone's monetary policies:
  • ECB's Wunsch warns of risk of 'sleepwalking' into excessive rate cuts, FT reports
  • ECB's Villeroy reaffirms deposit rates could be at 2% by this summer
• Nasdaq, S&P 500 fall as AI caution weighs on tech, Nvidia results in focus
  • Nasdaq, S&P, and Dow ended trading mostly lower while yields slipped as well

Tuesday, 25 February 2025

• Signs and portents for the U.S. economy:
  • Trump team seeks to toughen chip controls over China, Bloomberg News reports
  • Oil prices fall 3% to two-month low on worries about US tariffs
  • US bank profits climb as regulator adjusts 'problem bank' tracking
  • US house prices increase strongly in December
• Fed minions gearing up for rate cut in June 2025, claim to be worried about financial stability and uncertainty, may have Congress simplify their priorities:
  • Fed seen resuming rate cuts in June as consumer confidence takes a dive
  • Fed's Michael Barr: 'monetary policy and financial stability are inextricably linked'
  • Fed's Barkin: Uncertainty warrants a cautious approach to monetary policy
  • Fed's dual mandate faces new congressional task force in monetary policy review - report
• Bigger trouble, stimulus developing in China:
  • China's home prices to drop further, recovery not expected until 2026: Reuters poll
  • How the state is propping up China’s housing market
  • More Signs Of China's Decline
• JapanGov minions thinking about propping up Japan's auto sector:
  • Japanese auto industry seeks government help against US tariffs
• Eurozone minions think about propping up EU steel sector and don't think their monetary policy is dragging down Eurozone growth anymore:
  • EU promises support for steel sector as US trade tariffs loom
  • ECB rates no longer a material drag on growth, Schnabel says
  • German economy shrank by 0.2% in Q4, statistics office confirms
• Dow Rises; Nasdaq Falls; Home Depot Stock in Focus
  • Nasdaq and S&P slide as Trump reportedly plans tougher chip curbs on China
  • Treasury yields drop to their lowest levels in 2025 as market uncertainty rises

Wednesday, 26 February 2025

• Signs and portents for the U.S. economy:
  • Oil holds at two-month low on rising supply concerns
  • US East and Gulf Coast dockworkers ratify new six-year contract
  • US new home sales tumble; median house price highest since 2022
• Fed minions likely to finally face an audit, approach to US debt ceiling likely to affect plans to reduce holdings of US government-issued debt:
  • Exclusive: Head of Fed-watchdog task force in Congress plans broad US central bank review
  • Fed's quantitative tightening expectations upended by debt-ceiling worries
• Bigger bailouts developing in China:
  • China to start re-capitalizing banks with $55 billion, Bloomberg News reports
• Nasdaq ekes out gain, S&P ends little changed ahead of Nvidia's 'pivotal' results

Thursday, 27 February 2025

• Signs and portents for the U.S. economy:
  • Oil climbs more than 2% after Trump cancels Chevron's Venezuela licence
  • US pending home sales tumble to record low in January
• Fed minions get on bandwagon to claim they won't be cutting rates soon:
  • Fed's Harker expresses support for keeping policy rate on hold
  • Fed's Hammack says rates likely on hold for some time
  • Rise in US inflation expectations means Fed has to stay on guard, Schmid says
• BOJ minions to see more wage inflation in 2025:
  • Japanese manufacturing sector union members demand record pay hike in 2025
• ECB minions having trouble running money-losing business, expected to deliver next rate cut next week:
  • ECB fixes outage in multi-trillion-euro payment system
  • ECB to cut rates again on March 6 as focus turns to growth: Reuters Poll
• S&P 500 ends down as Nvidia tumbles following report
  • Nasdaq slides 3%, posts worst day in a month after 'not good enough' Nvidia results
  • NVIDIA in charts: Data Center revenue tops $35B but annual growth rate slows again

Friday, 28 February 2025

• Signs and portents for the U.S. economy:
  • Oil on track for first monthly drop since November on tariffs, Iraq exports
    • US drillers add oil and gas rigs for fifth week in a row, Baker Hughes says
  • US consumer spending posts first drop in almost two years
  • US goods trade deficit widens sharply in January
  • Exclusive: Aerospace industry scrambles to deal with fallout from huge US factory fire
• Fed minions expected to resume rate cuts in June 2025, will keep the Fed's balance sheet steady:
  • Inflation, growth may be in conflict but Fed seen restarting cuts in June
  • Exclusive: Fed's Hammack eyes steady balance sheet cuts amid US government financial uncertainty
• Bigger trouble developing in China:
  • China's manufacturing activity set to contract for second month in Feb
• BOJ minions get data to back their next rate hike:
  • Core inflation in Japan's capital slows but stays above BOJ target
• ECB minions' breakdown causing bigger trouble to develop in Eurozone:
  • ECB's multi-trillion payments breakdown sends shudders through Europe
  • Euro zone consumers lower near-term inflation expectations, ECB survey shows
• Stocks shrug off Trump-Zelenskyy developments, but take home February losses
  • Wall Street dips after Zelenskiy and Trump clash
  • Trump-Zelensky Meeting Implodes, Threatening Peace Talks

This was a fun week for analyzing stock prices! We love it when the chaotic behavior of stock prices can be explained just by putting it into an appropriate analytical framework. Weeks like this is why the S&P 500 chaos series is a running feature here at Political Calculations.

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