By John Lau
February 28, 2025 – One of the main reasons stocks have declined over the past week is due to concerns that the U.S. economy is losing momentum, and much of the concern is coming from weak sentiment surveys vis-a-vis hard economic data. So, do other market metrics echo these growth concerns? To answer that, we would need to look for “confirmation” from moves in the stock market, from different assets, or indicators, whether it be bonds, economic data, currencies, Fed expectations or credit spreads. The confirmation (or lack thereof) can tell us if a move truly has legs or whether it’s likely just positioning/rebalancing or short-term noise.
Since the bond market is often viewed as the “smart money” due to its predictive power of the economy, credit spreads is an important market metric to watch. For a refresher, credit spreads are the difference in yields between two bonds with the same (or similar) maturities but different credit qualities. For instance, the difference between the yield on a 10-year Treasury (which is still viewed in corporate finance as the “risk-free” rate) and the yield on a 10-year corporate bond with a maturity around 10 years. Credit spreads have risen recently and are currently sitting at four-month highs, so they are reflecting some concern in the bond market that growth could be losing positive momentum. However, they remain barely off the lows of last year and a long way from levels that would present a warning about a slowdown. Analysts look at credit spreads because they tell us bond investors’ views of future economic growth. Currently, the Baa corporate bond v. 10-year treasury spread is 1.50%[1], which is a four-month high, but still not far from the lows of last year and down solidly from the recent high of 1.85% in early August when stocks dropped on the soft jobs report. If we start to see this credit spread consistently rise (and accelerate) while stocks are declining, that will be at least partial confirmation that sentiment-driven growth worries are turning into something more substantial (and negative for stocks). Should the Baa over Treasuries credit spread rise above 2.00% consistently, that would be a much more negative signal that investors are legitimately acknowledging a hard landing isn’t just possible, but becoming more likely. At that point, and depending on what’s driving it, we’d need to make sure we have a defensive plan in place and be ready to act on it. For now, credit spreads do not seem to be confirming this decline in stocks and are also not signaling that bond investors are worried about an economic slowdown (and that’s good).
Looking at other hard economic data:
- January’s Durable Goods rose 3.1% vs. Expectation (E) 1.90%[2].
- January’s Core Personal Consumption Expenditure index rose 0.3% for the month and was at 2.6% annually, showing a step down from the upwardly revised 2.9% level in December. Headline inflation also eased by 0.1 percentage point[3].
- Final Sales of Domestic Product (which ignores inventory adjustments) and Final Sales to Domestic Purchasers (which ignore import/export skews) in Q4’s revised GDP report were both solid at 3.2% and 3.0%, respectively[4].
Bottom line, these economic data do push back against the idea that growth is losing momentum, although concerns about the economy will remain elevated, and next week’s key economic reports (ISM Manufacturing on Monday, Services on Wednesday and Jobs Report on Friday) are now very important for this market.
Our clients rely on us for timely information, and our job is to deliver.
[1] Y Charts
[2] Trading Economics – U.S. Durable Goods Orders
[3] CNBC Economy published Friday, February 28, 2025
[4] Bureau of Economic Analysis (BEA)
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A2225
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
Is the U.S. economy losing momentum?
By John Lau
February 28, 2025 – One of the main reasons stocks have declined over the past week is due to concerns that the U.S. economy is losing momentum, and much of the concern is coming from weak sentiment surveys vis-a-vis hard economic data. So, do other market metrics echo these growth concerns? To answer that, we would need to look for “confirmation” from moves in the stock market, from different assets, or indicators, whether it be bonds, economic data, currencies, Fed expectations or credit spreads. The confirmation (or lack thereof) can tell us if a move truly has legs or whether it’s likely just positioning/rebalancing or short-term noise.
Since the bond market is often viewed as the “smart money” due to its predictive power of the economy, credit spreads is an important market metric to watch. For a refresher, credit spreads are the difference in yields between two bonds with the same (or similar) maturities but different credit qualities. For instance, the difference between the yield on a 10-year Treasury (which is still viewed in corporate finance as the “risk-free” rate) and the yield on a 10-year corporate bond with a maturity around 10 years. Credit spreads have risen recently and are currently sitting at four-month highs, so they are reflecting some concern in the bond market that growth could be losing positive momentum. However, they remain barely off the lows of last year and a long way from levels that would present a warning about a slowdown. Analysts look at credit spreads because they tell us bond investors’ views of future economic growth. Currently, the Baa corporate bond v. 10-year treasury spread is 1.50%[1], which is a four-month high, but still not far from the lows of last year and down solidly from the recent high of 1.85% in early August when stocks dropped on the soft jobs report. If we start to see this credit spread consistently rise (and accelerate) while stocks are declining, that will be at least partial confirmation that sentiment-driven growth worries are turning into something more substantial (and negative for stocks). Should the Baa over Treasuries credit spread rise above 2.00% consistently, that would be a much more negative signal that investors are legitimately acknowledging a hard landing isn’t just possible, but becoming more likely. At that point, and depending on what’s driving it, we’d need to make sure we have a defensive plan in place and be ready to act on it. For now, credit spreads do not seem to be confirming this decline in stocks and are also not signaling that bond investors are worried about an economic slowdown (and that’s good).
Looking at other hard economic data:
Bottom line, these economic data do push back against the idea that growth is losing momentum, although concerns about the economy will remain elevated, and next week’s key economic reports (ISM Manufacturing on Monday, Services on Wednesday and Jobs Report on Friday) are now very important for this market.
Our clients rely on us for timely information, and our job is to deliver.
[1] Y Charts
[2] Trading Economics – U.S. Durable Goods Orders
[3] CNBC Economy published Friday, February 28, 2025
[4] Bureau of Economic Analysis (BEA)
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A2225
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
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