MW Last week showed the stock market has moved on from obsessing about inflation. Here's the new playbook.

By Barbara Kollmeyer

Value stocks and smaller stocks are smart plays in this environment, says Neuberger Berman.

A shortened week could kick off with a new record for the S&P 500.

Last week marked the best since late January for the index SPX, which broke a two-week losing streak despite a couple of hot inflation reports - consumer and producer prices.

This brings us to our call of the day from Neuberger Berman co CIOs Jeff Blazek and Erik Knutzen, who write that after two years, inflation is no longer the big data to watch and a "new dynamic is at play."

"Last Wednesday's unexpectedly high U.S. inflation data was a significant test for this analysis, and the market took it largely in stride. That underlines our view that investors need to shift from an 'inflation mindset' to a 'growth mindset' to understand current dynamics," Blazek and Knutzen told clients in an investor note.

And that means a market that now places more importance on growth expectations, they said.

That's a shift they have been already predicting for the fixed-income market. They noted how the past three years shorter-term bonds were volatile due to shifting inflation and interest-rate expectations.

Neuberger Berman's global head of fixed income, Ashok Bhatia, predicted at the start of 2025 that volatility would switch to longer-term bonds, as the market shifted its focus to fiscal policies and their impact on interest rate and growth expectations. The yield on the 10-year Treasury BX:TMUBMUSD10Y has seen some choppy action so far this year, currently trading back where it was in mid-December, around 4.5%.

As for equities, they said a heavy concentration in strongly performing large technology stocks offset the fact that most stocks underperformed last year.

The investors noted the new year is seeing more optimism in the economy, owing to consumer confidence, falling unemployment, rising wages and positive manufacturing surveys. Added to that is a budding rebound in China's economy and positive signs from Europe as well.

"The result since the start of the year, has been notable outperformance from U.S. value stocks, industrials, financials, higher-quality U.S. midcaps and, especially, European equities," said Blazek and Knutzen, who expected this setup for 2025. In December, their positive outlook for stocks came with advice for clients to approach the S&P 500 cautiously and diversify for a broadening market performance.

They note the broadening performance comes as worries about inflation haven't died down, with market expectations on prices creeping higher and plenty of commentary out there about the inflationary impact of tariffs.

"And yet, aside from the prospect of tariffs, none of those things have knocked equity markets off course. And note that the sell-off triggered by President Trump's tariff announcements was accompanied by falling bond yields, affirming...that their growth implications are far more important for market prices than their inflation implications," Blazek and Knutzen said.

"We think the initial sell-off following Wednesday's inflation release was quickly erased for the same reason. Investors know that January's inflation data has a seasonal tendency to overshoot, but we see the growth mindset at work here, too."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are trading higher with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y also creeping up and the dollar DXY up 0.3%.

Gold (GC00) is higher and both Goldman and UBS lifted their forecasts.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6114.63    1.47%   1.97%   3.96%   22.16% 
   Nasdaq Composite                                                     20,026.77  2.58%   2.02%   3.71%   26.95% 
   10-year Treasury                                                     4.513      1.50    -11.70  -6.30   22.89 
   Gold                                                                 2926.1     -0.36%  7.12%   10.87%  44.47% 
   Oil                                                                  71.49      -1.35%  -6.39%  -0.53%  -8.63% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Intel $(INTC)$ shares are climbing on a report that Taiwan Semiconductor Manufacturing $(TSM)$ and Broadcom $(AVGO)$ are each considering deals for parts of the chip maker's business.

Constellation Brands $(STZ)$ stock is rallying after Warren Buffett's Berkshire Hathaway revealed a new stake via fourth-quarter 13-F filings, and upped stakes in Domino's Pizza $(DPZ)$ and Pool Corp. $(POOL)$. Ulta Beauty $(ULTA)$ is slipping after it exited the beauty supply group.

Shares of several U.S.-listed China tech stocks are higher - Alibaba $(BABA)$, PDD $(PDD)$, XPeng $(XPEV)$, Li Auto $(LI)$ and NetEase $(NTES)$ - after President Xi Jinping's rare public meetup with the country's tech entrepreneurs. Baidu $(BIDU)$ is weaker after reporting falling profits in its core business.

A Delta Air Lines $(DAL)$ jet flipped over while landing in snowy Toronto on Monday. All 80 persons aboard survived, with some injuries. Delta shares are slipping.

The Empire State manufacturing survey will be released at 8:30 a.m., followed by a U.S. home builder confidence survey at 10 a.m. Federal Reserve Gov. Christopher Waller said interest rates should be kept on hold for now. San Francisco Fed President Mary Daly is scheduled to speak on Tuesday.

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The chart

The chart from Bank of America's latest global fund manager survey shows that a speeding up of China growth would be the most bullish development for risk assets in 2025. That's been at the top of the list for global managers since December. AI productivity gains are at No. 2 and Fed rate cuts at No. 3.

Also read: Buffett's been hoarding cash. The rest of the market is doing the opposite.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   PLTR    Palantir Technologies 
   SMCI    Super Micro Computer 
   TSM     Taiwan Semiconductor Manufacturing 
   INTC    Intel 
   BABA    Alibaba 
   AAPL    Apple 
   NIO     NIO 

Random reads

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-Barbara Kollmeyer

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February 18, 2025 06:54 ET (11:54 GMT)

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