Stock Market Insights: Navigating change – inflation, tariffs and trends

Joe Shearrer, CPFA® is Vice President and Wealth Advisor at Fervent Wealth Management.

As my daughter prepares to enter junior high in the fall of 2025, I find myself reflecting on how much the world around her is changing. Just as she is stepping into a new phase of learning, growth and independence, the U.S. economy and stock market are also navigating their own transition. With inflationary pressures, Federal Reserve policies, and new tariffs shaping the financial landscape, investors—like parents—must stay informed, adaptable and ready for the unexpected.

As of February 12, 2025, the U.S. economy and stock market are navigating a complex landscape shaped by recent policy decisions, inflationary pressures and market reactions.

Inflation and Federal Reserve stance

Recent data indicates that inflation remains a significant concern. The Consumer Price Index (CPI) for January 2025 rose by 0.5%, pushing the annual inflation rate to 3%, slightly above the Federal Reserve’s 2% target. Core CPI, which excludes food and energy prices, increased by 0.4% month-over-month, resulting in a 3.3% annual rise. In response, Federal Reserve Chair Jerome Powell emphasized that the economy is “strong overall,” with low unemployment and inflation above the Fed’s target. He indicated that there is no immediate urgency to cut short-term interest rates, cautioning against reducing policy restraint too quickly to avoid hindering progress on inflation.

Market reactions

The stock market has exhibited mixed responses to these economic indicators and policy decisions. On February 11, the S&P 500 remained nearly flat, the Dow Jones Industrial Average rose by 0.3%, and the Nasdaq Composite declined by 0.4%. These movements reflect investor caution amid ongoing economic developments.

Treasury yields have also reacted to the inflation data. The 10-year Treasury yield experienced its most significant one-day increase of 2025, rising to 4.65%, while the two-year yield climbed to 4.36%. These increases suggest that investors are adjusting their expectations regarding future Federal Reserve rate cuts, with some analysts reconsidering the likelihood of such cuts in the near term.

Impact of new tariffs

President Donald Trump’s recent introduction of a 25% tariff on all foreign steel and aluminum imports has added another layer of complexity to the economic environment. While this move aims to protect domestic industries, it has raised concerns about potential trade wars, higher consumer prices, and disruptions in global supply chains. Despite these concerns, the stock market has shown resilience, with major indices experiencing minimal changes following the announcement.

Looking ahead

The U.S. economy continues to grapple with inflation concerns, prompting the Federal Reserve to maintain a cautious stance on interest rate cuts. The stock market has reacted with measured optimism despite shifts in Treasury yields and the introduction of new tariffs on foreign steel and aluminum. While uncertainty remains, historical trends and strong market fundamentals suggest that 2025 could still be a profitable year for investors—though with some expected volatility.

Just as my daughter embarks on her junior high journey, both investors and the economy must navigate changes with patience, adaptability and a focus on long-term success. I know my wife and I will need these same reminders as we watch our firstborn head off into the uncertainties of junior high.

Have a blessed week!

www.FerventWM.com