February 21, 2025
Stocks Hold Near Highs Despite Political Volatility
A review of the week’s top global economic and capital markets news.
AUTHOR
Jamie Coleman
Strategist, Strategy and Insights Group
For the week ending 21 February 2025
As of midday Friday, global equities hovered just below record levels. The yield on the US 10-year Treasury note, at 4.46%, was little changed on the week, The price of a barrel of West Texas Intermediate crude oil didn’t change much either, coming in at $71.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 17.1 from 16.1 a week ago.
MACRO NEWS
US, Russia lay groundwork for Ukraine talks
Amid growing concerns in Europe that US support for the transatlantic alliance is waning, a team of envoys, led by US Secretary of State Marco Rubio, met in Saudi Arabia with Russian Foreign Minister Sergey Lavrov and an aide to President Vladimir Putin. They agreed to set up teams to begin to repair US–Russia relations, ending Russia’s isolation on the world stage, and put in place high-level working groups to begin exploring a negotiated end to the conflict in Ukraine. Neither Ukraine nor the European Union participated in the discussions, though Rubio and US National Security Advisor Mike Waltz said they will be brought in. Tensions rose dramatically on Tuesday when US President Donald Trump appeared to side with the Russian leader instead of Ukraine’s president, Volodymyr Zelensky. European leaders have been meeting this week to discuss supporting Ukraine and shoring up their own defenses. French President Emmanuel Macron and British Prime Minister Keir Starmer are expected to travel to Washington next week to meet with President Trump.
EU trade chief meets US counterparts
EU trade chief Maroš Šefčovič met with US Secretary of Commerce Howard Lutnick, US Trade Representative Jamieson Greer and Director of the National Economic Council Kevin Hassett for four hours on Wednesday in Washington. Šefčovič said the EU wants to head off unilateral US tariffs — particularly on the auto industry — and EU countermeasures, saying Europe is interested in buying more US liquified natural gas. He also pointed out that while the EU has a large goods trade surplus with the United States, the US has a substantial services surplus with Europe, leaving about a $50 billion annual gap, or about 3% of total trade. He expressed optimism that the net gap can be closed quickly and that a compromise can be reached.
Fed minutes show less inflation needed for cuts
The minutes of the January meeting of the Federal Open Market Committee highlighted the upside risk of inflation and the need for further progress on it before the US Federal Reserve resumes rate cuts. Trade and immigration policies could hinder progress, the readout showed. Uncertainty warrants a cautious approach, the minutes said, though policymakers expect inflation to move to 2% over time, even if progress is uneven. The Fed said it is considering pausing or slowing the pace of quantitative tightening until the US debt ceiling situation is resolved.
QUICK HITS
Preliminary February purchasing managers’ indices showed a deterioration in services activity this month in the US and the eurozone.
Trump previewed potential 25% tariffs on imported autos, drugs, semiconductors and lumber, saying they could come into effect as soon as April 2.
German investor confidence increased by the most in two years in February, according to ZEW. Its expectations index rose to 26 from 10.3 in January ahead of German elections on Sunday as a coalition led by the Christian Democratic Union is expected to reduce taxes, regulation and social spending.
In the United Kingdom, average weekly earnings excluding bonuses rose 5.9% in the fourth quarter. Strong wage growth is expected to keep the Bank of England cautious on rate cuts.
Japan’s economy grew at an annualized 2.8% in the fourth quarter, a much stronger pace than economists had expected. It was the country’s third straight quarter of growth, which should help keep the Bank of Japan on track for further interest rate hikes. On Friday, BOJ Governor Kazuo Ueda said the central bank would consider buying Japanese government bonds “nimbly” if yields rise sharply. Also on Friday, data released showed that Japan’s core CPI rose 3.2% year over year in January, the highest level in 19 months.
The Reserve Bank of Australia cut its policy rate 0.25% to 4.1%, the first decline since November 2024, but warned investors not to expect an aggressive rate-cutting cycle. The Reserve Bank of New Zealand cut its cash rate 0.5%, to 3.75%, and said it sees scope for further cuts.
The Trump administration this week ordered the Pentagon to plan for annual 8% budget cuts over the next five years.
US Treasury Secretary Scott Bessent said Thursday that any move to increase the issuance of long-term Treasuries is some ways off and will come after inflation falls and when the Fed has finished shrinking its balance sheet. He dismissed speculation that the US government would revalue its gold reserves, which stand at $42.22 an ounce, to reduce US borrowing needs or fund a sovereign wealth fund.
On Wednesday night, Trump signaled his willingness to reach a fresh trade deal with China.
Both the S&P 500 and the Nasdaq composite indices closed at record highs on Wednesday.
UK retail sales surged in January, rising 2.1% against expectations of a 0.9% gain.
Retail sales jumped in Canada in January as well, increasing 2.5% month over month, beating forecasts.
EARNINGS NEWS
With about 86% of the constituents of the S&P 500 Index having reported for Q4 2024, blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings rose around 17.2% compared with the same quarter a year ago, according to data from FactSet. Blended sales rose 5.3% year over year.
THE WEEK AHEAD
Sunday: German parliamentary elections
Monday: Eurozone CPI
Tuesday: US Case-Shiller home price index, Conference Board consumer confidence
Wednesday: Australia CPI, Japan leading indicators, US new home sales, Nvidia earnings
Thursday: eurozone consumer, economic and industrial confidence, US GDP revision, pending home sales
Friday: Japan retail sales, Canada GDP, US PCE
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The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.
Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.
The views expressed in this article are those of MFS and are subject to change at any time. No forecasts can be guaranteed.
Past performance is no guarantee of future results.
Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
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