Geopolitical tensions took center stage as President Trump announced an additional 10% tariff on Chinese goods, triggering a sharp decline in Chinese equities. The CSI 300 Index, which tracks the largest stocks on the Shanghai and Shenzhen exchanges, fell 2%, while an index of Chinese shares in Hong Kong dropped 3.3%, marking its worst day since October. China signaled plans to retaliate, adding further uncertainty to the global economic outlook.
The escalation in trade tensions added to recent pressure in U.S. financial markets. The S&P 500 declined 2.3% for the week, its worst performance since September. Despite higher than expected fourth quarter revenue and earnings from Nvidia (NVDA), the stock declined 8.5% on Thursday, signaling perhaps a change in sentiment away from riskier assets. Meanwhile, rising expectations for Federal Reserve rate cuts and investor positioning towards safer investments drove Treasury yields lower. The 2-year Treasury yield fell 15 basis points to 4.04%, the 5-year declined 21 basis points to 4.06%, and the 10-year dropped 18 basis points to 4.25%. As yields fell, bond prices rose, reflecting increased demand for fixed-income assets amid economic uncertainty.
Economic data painted a mixed picture. The Chicago Fed National Activity Index slipped to -0.03 in January from +0.18, indicating slowing growth. Consumer confidence declined, with the Conference Board’s index falling 7 points to 98.3, its steepest drop since August 2021, as concerns over inflation and job security grew. However, nominal incomes rose 0.9%, supported by Social Security cost-of-living adjustments. Initial jobless claims climbed to 242,000, the highest this year, suggesting a potential slowdown in hiring. Inflation showed signs of easing, with the core personal consumption expenditures (PCE) price index rising 0.3% in January and 2.6% year over year.
Despite affordability concerns, the housing market remained resilient. The Case-Shiller Home Price Index 20-City Home Price Index (HPI) reported a 4.5% annual increase in home prices for December, led by New York and Chicago. Mortgage rates fell to 6.8%, their lowest level this year, offering some relief to buyers. However, pending home sales dropped 4.6% m/m, as rising home prices and borrowing costs continued to strain affordability.
Looking ahead, the Chandler team will closely monitor economic trends and policy developments as the effects of tariffs, deregulation, and fiscal policies unfold. We expect the Federal Reserve (Fed) to lower the federal funds rate in 2025. As inflation continues to moderate, we believe the Treasury yield curve will likely steepen, primarily driven by lower short-term rates. While the timing of rate adjustments remains uncertain, Fed decisions will be guided by evolving economic conditions. As markets adjust to shifting monetary policy, we remain focused on identifying opportunities, managing risks, and positioning strategically for changing market conditions.
Next week: S&P Global US Manufacturing PMI, ISM Manufacturing, S&P Global US Services PMI, Factory Orders, Durable Goods Orders, ISM Services Index, Federal Reserve Beige Book, Employment Report, Consumer Credit
© 2025 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. All rights reserved. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth. The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.