The Profit Margin: February 10, 2025
Statistic of the Week
For consistent followers of The Profit Margin, it will not be surprising to discover that the expense involved in acquiring your first home, an essential aspect of the “American Dream,” has risen significantly. For those entering the housing market for the first time, soaring home prices alongside high interest rates are rendering purchases increasingly difficult. In 2012, the income necessary to purchase an average home in the U.S. was $39,223. By November 2024, this amount surged to $126,765, marking a staggering increase of 223%.
Global Perspective
The Bank of England has lowered its key interest rate by 0.25%, bringing it to a current level of 4.50%. The bank indicated that inflation in the U.K. remains “somewhat elevated,” and that economic growth is “weaker than expected.” Notably, two members of the voting committee advocated for a more substantial reduction, suggesting a 0.50% cut instead.
Market Moving Events
Wednesday: CPI, Fed Chair Powell before Congress, Federal Budget
Thursday: Initial Jobless Claims, PPI
Friday: Import Prices, Retail Sales, Capacity Utilization, Business Inventories
Commentary
Last week, the “trade war that wasn’t” caused some market fluctuations. Ultimately, following a “pause” on new tariffs for goods from Mexico and Canada (though additional tariffs on Chinese goods were implemented), the markets remained relatively stable for the week. Fixed income yields experienced a slight decline, with the 10-year Treasury yield decreasing by 0.07% to conclude Friday at 4.50%.1 The primary domestic equity indices all recorded minor declines, with the S&P 500 dropping by 0.24%.2 The Nasdaq and DJIA performed slightly worse, falling by 0.53% and 0.54%, respectively.3 An old trader’s saying goes, “As January goes, so goes the year.” If this holds true, we may anticipate a turbulent, yet ultimately positive, journey ahead.
Last week saw the highest volume of earnings reports for the quarter. Overall, the tone has been “cautiously optimistic.” Several key data points on the labor market were also released. In January, the U.S. economy added 143,000 jobs, which was below analyst estimates.4 Some analysts attribute this to the L.A. fires and extreme winter weather across the country.5 There was a decline in the unemployment rate (chart below).6 In the Consumer Sentiment report from the University of Michigan, expectations for the inflation rate over the next year rose to 4.3%, the highest reading since November 2023.7 This week’s CPI and PPI reports will help inform that figure moving forward. In addition to these key inflation reports, investors will be watching for more trade war news. New tariffs are expected to be announced on aluminum and steel, and reciprocal tariffs are expected on imports from several trade partners.8
Chart of the Week
In January, the U-3 unemployment rate saw an unexpected decline. Analysts had anticipated that the rate would hold steady at 4.1%; however, it instead dropped to 4.0%. This indicates that the labor market continues to be robust.
Source Materials
Market Moving Events:
MarketWatch.com
Chart of the Week:
Clearnomics,
Bureau of Labor Statistics
Statistic of the Week:
The Wall Street Journal
Global Perspective:
The Economist
Commentary:
1. MarketWatch.com
2. Bloomberg
3. Bloomberg
4. Bureau of Labor Statistics
5. Investor’s Business Daily
6. Bureau of Labor Statistics
7. Investor’s Business Daily
8. MarketWatch.com