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Week in Review: 17-21 February 2025

Financial Markets

The US equity market started the week on a neutral note, but on Friday things changed. This week the S&P500 and the NASDAQ 100 lost 1.7% and 2.3%, respectively. The small cap index (Russel 2000) was even weaker and dropped 3.7%. Trading volumes were average.

The metals were strong: gold and silver gained 1.8% and 0.9%, respectively. Gold closed the week at 2935$, another all-time-high. Gold may continue up to 3k$, a round number, but silver has resistance at 33$.

WTI closed the week at 70.2$/bbl, and is still at a support level - if it breaks down, the next target is 67$.

Bitcoin was unchanged, and continues trading in the 91-109k$ range.

The relative strength of the US dollar (DXY) fell just slightly this week and is around ~106.6. The EUR/USD is around 1.045$, the GBP/USD is at 1.263$, and the USD/JPY is at 149.22 JPY.

US M2 money supply at the date of 30th December 2024 was up by 0.4%. We are waiting for the January 2025 update.

The national financial conditions index (NFCI) for the week of 10th February 2025 loosened by 0.7%, a slow but continuous loosening of financial conditions in the beginning of the month. Note that this indicator is delayed by a week.

US bond yields were slightly down this week, and now sit at 4.198% for the 2-year and 4.431% for the 10-year.

The VIX jumped higher on Friday, to ~20, due to the selloff on the stock market. The VIX could easily reach 20-23 during the next weeks, indicating a growing fear and search for put options from the part of investors/speculators.


Comment Section

The highlight of the week was the release of the S&P Global US Composite PMI on Friday. The number (50.4) was way below expectations, indicating a stagnating US economy. The report shows a contraction in services output, new order growth weakening, and employment edging lower amid rising uncertainty and cost concerns. On the price front, input cost inflation accelerated to its highest level since last September, while selling prices saw their slowest increase in three months. Finally, business optimism about the coming year slumped, amid concerns over federal government policies related to domestic spending cuts and tariffs, as well as worries over higher prices, and broader geopolitical developments.
 
Cash on the sidelines is not much, and although I'm not a permabear or permabull, I believe we are sitting around a market top. The signs of a slowing economy are becoming visible. Don't rush into buying the dip unless you are fundamentally convinced you are getting good value for your money. Otherwise, be patient: there are times when you are better served if you do nothing. This is a time when you can increase your cash equivalents (T-bills, for example) if you share some of my concerns. If you are an option seller, keep some money on the sidelines to take advantage of further increases in volatility.
 



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