It was a big week on Wall Street. In just six trading sessions, the S&P 500 Index gave back all its 2025 gains into Thursday. The Friday bounce-back helped the index close in positive territory year-to-date, but it was still down 1% for the week. The tech-heavy NASDAQ fared worse and closed down 3.5%, while the small cap stocks gave up 1.6%
The decline stemmed from declining confidence, dour housing reports, and a stubbornly resilient inflation report. Tech-related artificial intelligence and high momentum stocks were hit hard this week, and housing stocks continue to show weakness. Signs of institutional selling (i.e., distribution), which had subsided over the prior few weeks, reappeared this week.
Consumer spending has been the backbone of this economic expansion. However, recent developments suggest the consumer may be priming for a pullback.
Consumer Confidence from the Conference Board declined meaningfully in February, following the pattern seen in the Consumer Sentiment report last week. Most notably, the Future Expectations Index plummeted 9.3 points, below the critical threshold (80.0) for a recession ahead. In addition, inflation expectations surged in February, suggesting the Fed’s path toward their 2% inflation goal remains uncertain and unfinished.
Consumers have been unable to sustain their post-election optimism, reflecting growing fears over inflation, tariffs, a weakening labor market, and future business conditions. Consumer spending accounts for roughly 70% of the Gross Domestic Product (GDP), and if this pessimism continues, a cautious consumer could lead to an economic slowdown.
New Home Sales from the Census Bureau dropped 10.5% in January, while the median home price rose. As a result, Months’ Supply of New Homes for Sale increased to nine months, pointing to further stress for homebuilders.
Pending Home Sales from the National Association of Realtors (NAR) were much worse than expected, plunging to their lowest level on record in January. As a leading indicator for existing home sales, this does not bode well for the housing market. This report adds to the growing list of warning flags that trouble is brewing in the housing market.
Durable goods orders (ex-transportation) showed flat growth, with the consensus estimates looking for a 0.4% rise in the month. Total orders were up 3.1% percent versus expectations for +1.9%. Durable goods orders are new orders placed with domestic manufacturers for factory hard goods. The report also contains information on shipments, unfilled orders, and inventories.
The Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure (versus the consumer price index), was mainly in line with expectations but still resiliently higher than the Fed’s 2% target. The overall PCE increased by 0.3% for the month and 2.5% annually. Excluding food and energy, the Fed’s preferred core PCE also rose 0.3% for the month and is 2.6% annually. Data released also showed that consumers dramatically reduced their spending by the most since February 2021.
The coming week is chock full of economic news, including Friday’s February monthly non-farm payrolls report.
Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and their financial plan and investment objectives are different.
Source: InvesTech Research
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