Stock Rally Resumes Amid Stubborn Inflation and Weak Retail Sales

Traders work on the floor of the New York Stock Exchange on Feb. 12, 2025. Angela Weiss/AFP via Getty Images

After a two-week pause, the rally in U.S. stocks resumed last week, led by tech shares, as traders and investors shook off hotter-than-expected inflation data and a weak retail sales report.

Most of the gains came at the beginning of the week, thanks to a strong rally in tech shares, led by a rebound in the semiconductor sector. Meanwhile, steel and aluminum stocks climbed after news emerged last weekend that the United States planned to impose tariffs on imports. Additionally, better-than-expected earnings reports from McDonald’s and Rockwell Automation on Feb. 10 helped broaden the rally beyond the tech and materials sectors.

The S&P 500 ended Feb. 14 at 6,114, up 1.47 percent for the week; the Dow Jones closed at 44,546, up by 0.55 percent; the Nasdaq finished the week at 20,026, up by 2.58 percent; and the small-cap Russell 2000 was up 0.01 percent to end at 2,279.

Things could have been even better for Wall Street bulls if it hadn’t been for a couple of economic reports that raised concerns over the state of the U.S. economy and the direction of the monetary policy for the rest of the year. These data sent stocks on a bumpy ride later in the week.

One was the U.S. consumer inflation report released on Feb. 12. It showed that the annual core consumer price inflation rate, which excludes items such as food and energy, increased to 3.3 percent in January, up from 3.2 percent in December 2024 and ahead of market expectations.

“Inflation has gotten sticky with items like used cars and auto insurance ticking back up,” David Russell, global head of market strategy at TradeStation, told The Epoch Times.

“This puts pressure on the Fed and the White House to tread carefully on tariffs. There was progress on owners’ equivalent rent, but other items are moving incorrectly. Investors may not react aggressively because we get more data before the key dotplot in March. But time could be running out for this bull market if we don’t see progress on inflation soon.”

As Federal Reserve Chair Jerome Powell reiterated in front of the Senate Committee on Banking, Housing, and Urban Affairs, the nation’s central bank may not rush to resume interest rate cuts anytime soon.

“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” he said.

“We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”

Skyler Weinand, chief investment officer of Dallas-based Regan Capital, said he expects the Federal Reserve to keep interest rates on hold for the remainder of 2025.

“The Fed has nothing to do at this point but wait and see and hope that the economic indicators change to suggest more progress on inflation,” he told The Epoch Times.

“If consumer prices or inflation expectations rise any further, it is quite possible that the Fed’s next move is to raise short-term interest rates.”

The prospect that the Fed raises rather than cuts interest rates sent bond yields higher, with the benchmark 10-year U.S. Treasury note soaring above the 4.5 percent threshold on Feb. 12.

Consumer prices have risen since September 2024, prompting the nation’s central bank to pause interest rate cuts and helping push bond yields higher. That’s a headwind for stocks as higher bond yields depress equity valuations.

However, major equity indexes have rallied on the robust economy, prospects of the Trump administration’s market-friendly policies, and artificial intelligence hype.

Another economic report that moved the needle for financial markets last week came on Feb. 14. U.S. retail sales contracted by 0.9 percent in January from the previous month. This was the largest decline in retail sales since March 2023, led by declines in sales of sporting goods, hobbies, and musical instruments.

Weak sales have raised concerns that U.S. consumer spending, which has been a driving force behind the economic recovery since the end of the COVID-19 pandemic, is slowing down.

The prospect of a weak economy helped ease bond yields, with the 10-year U.S. Treasury bond yield falling to 4.48 percent on Feb. 12.

Weinand said he remains optimistic about equities for the rest of the year, citing healthy consumer and corporate balance sheets.

“Companies are paring their workforces and right-sizing their businesses to maintain margins and growth into the future,” he said. “Stocks should thread the needle this year to maintain double-digit returns.”