No Drastic Weakness In Economic Data Despite Market Correction

Heading into 2025, there was a wave of optimism fueled by expectations of tax cuts and deregulation under the newly elected Trump administration. But that sentiment quickly wavered. Just one week in, President Trump made unexpected comments about tariffs, raising early concerns.

At first, markets brushed it off. The S&P 500 even reached an all-time high, as many investors assumed the tariff rhetoric was simply a negotiation tactic rather than a serious policy shift. However, as the tariff talk continued, uncertainty began to take hold. Then, on February 20th, a sharply negative consumer sentiment report shifted the tone entirely—suggesting that consumers feared inflation could make a comeback. That report marked the start of a 10% market correction.

Consumer sentiment is known as a "leading indicator," offering a glimpse into potential future economic trends. It's considered "soft data" because it's survey-based, rather than grounded in concrete figures like employment or CPI. Normally, consumer confidence offers valuable insight – but in today's deeply polarized political climate, its reliability is more questionable.

The most alarming data point in the report was inflation expectations, which came in at around 4%. Markets reacted swiftly—stocks dropped. Interestingly, political affiliation significantly influenced the responses: Republicans expected 0% inflation, while Democrats expected 7%. Because Democrats made up the majority of respondents, the headline number was skewed higher.

It's a bit ironic that such a politically tinged report helped trigger the correction. Despite market reactions, hard economic data hasn't shown drastic weakness. While tariffs may slow the economy, I don't see enough evidence for the kind of inflation surge or sustained weakness the soft data suggests. For now, we remain in a "wait and see" economy.

My advice? Focus on the positive and keep an optimistic outlook.

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