Anxiety Building in Markets — Evening Brief – 02.28.25
Recent news headlines seem to have rattled investors’ confidence, though it’s too early to overreact to a handful of underwhelming survey results. More significantly, the latest figures show the economy is still expanding, companies keep adding jobs, and the short-term forecast for consumer spending looks promising. Still, the financial markets appear to be exhibiting a bit of anxiety.
Two indicators of consumer attitudes in February offer a useful starting point. The University of Michigan’s Consumer Sentiment Index took a significant hit this month, with Surveys of Consumers Director Joanne Hsu noting that the decline was “in large part due to fears that tariff-induced price increases are imminent.”
The Conference Board’s Consumer Confidence Index echoes a similar tune. “In February, consumer confidence registered the largest monthly decline since August 2021,” said Stephanie Guichard, a senior economist at The Conference Board. “This is the third consecutive month on month decline, bringing the Index to the bottom of the range that has prevailed since 2022.”
Moreover, the NFIB Small Business Optimism Index slipped in January—down 2.3 points to 102.8, which snaps a two-month climb after Trump’s election in November sparked a surge of hope. That post-election bump had pushed it to 105.1 in December, the highest since October 2018, so even with the drop, it’s still above the 51-year average of 98. Small business owners were riding high late last year, betting on friendlier policies like tax cuts and deregulation.
But that Uncertainty Index jumped 14 points to 100 in January—third highest ever, behind only October 2024’s record 110 and November 2020’s 101. After sliding for two months straight, that spike suggests the initial euphoria’s giving way to nerves.
Sentiment numbers can be taken with a grain of salt, but the latest figures likely reflect a spike in unease this month. One plausible driver could be the White House’s whirlwind of bold moves in recent weeks—especially the push for steep tariff hikes, which many expect to bump up prices and stoke inflation, even if just for a while.
The recent changes in the trends for stocks and bonds are becoming tougher to brush off. The S&P 500 Index has slipped a little over 3% from its February high. That said, it’s still hovering near all-time highs, so it’s too soon to overanalyze a few days of what, for now, looks like a typical pullback.
At the same time, the steep drop in U.S. Treasury yields could, at first glance, seem like good news. Maybe so, but it hinges on whether this keeps up—and what’s driving it. For the moment, declining bond yields paired with dropping stock prices hint that a shift toward risk aversion might be bubbling up.