Economic Data and Market Highlights
The US equity markets as indicated by the DJIA rose modestly during the week, up 65 basis points. The S&P 500 had a bigger increase, up 1.65% as Information Technology and Communication Services names rose 3.79% and 1.99% respectively. Developed markets rose 2.66% in USD terms for the week with German names rising 5.35% and UK names rising 2.1%. Emerging markets rose 1.54% as Chinese equities rose 7.38% while Indian equities declined 3.12%.
Inflation continues to climb, with car insurance, used cars, and fuel prices all contributing to the overall consumer price increase of 0.5% from December to January. This marked the quickest monthly rise since August 2023, driven by sharp increases in food prices, particularly eggs, which saw a record spike of 15.2%. The price of eggs alone accounted for nearly two-thirds of grocery inflation, and over the past year, egg prices have risen by 53%. Excluding volatile food and energy costs, core inflation also saw a significant uptick, registering the highest monthly increase in almost two years. These rising costs have sparked speculation about interest rates, with traders now adjusting their expectations to a 30% chance the Federal Reserve won’t cut rates this year.
The New York Fed reported on Thursday that household debt levels increased $93 billion in the fourth quarter of 2024to $18.04 trillion also noting that delinquency rates in credit cards and auto loans continue to remain at elevated levels.
On Thursday President Trump announced plans to implement reciprocal tariffs aimed at equalizing the tax rates that other countries impose on U.S. goods. These tariffs are designed to match the duties that U.S. trading partners, such as the European Union, Japan, and India, apply to American exports. The administration cited examples like the EU’s high tariffs on U.S. imports and restrictions on shellfish as unfair trade practices. The tariffs are scheduled to take effect on April 1, 2025, and are intended to protect U.S. industries and raise revenue. However, there are concerns that this move could escalate trade tensions, potentially leading to retaliatory measures from affected countries and impacting global economic stability. Bloomberg Economics noted that the uncertainty related to trade could reduce industrial production by 0.8% by the end of the year and 1% by May of 26.
Silicon Valley’s unicorn startups, private companies valued at over $1 billion, are facing increasing financial pressure as funding conditions tighten. The number of newly minted unicorns has significantly declined, from 621 in 2021 to just 95 last year, and many existing ones are struggling to secure fresh capital or find viable exit strategies. Venture capital firms, which invested $60 billion more than they recouped last year, are also seeing lower returns, adding to the challenges in the ecosystem.
In this environment, deal-making has become more complex and time-consuming. Startups seeking funding or acquisitions are finding that investors and buyers are conducting more rigorous due diligence, scrutinizing business fundamentals, revenue models, and profitability projections more closely than in previous years. The days of rapid funding rounds with minimal scrutiny have largely passed, and negotiations are taking longer as investors weigh risks more carefully.
Similarly, acquisition deals that once took weeks to finalize are now stretching into months as companies navigate regulatory hurdles, valuation adjustments, and strategic fit assessments. Larger tech firms, which some struggling startups are turning to for potential bailouts, are being selective in their acquisitions, often preferring licensing agreements or hiring deals over full takeovers to mitigate financial and regulatory risks. This shift underscores the broader recalibration in startup financing, where capital is still available but comes with longer timelines and more stringent conditions.
The Past Week’s Notable US data points (with revisions)
The Upcoming Week’s notable US data points
Source: Morningstar
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Jim Bianco Research, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director
Michael McNamara, Analyst
Sam Morris, Analyst