1) Are Inflation Expectations Anchoring?

The tariffs are impacting the psyche, and people are reacting. Their inflation expectations are firming up, or as they say, the inflation expectations are anchoring. The 5-year Forward Inflation Expectations have been between 2.40% and 2.24% since November 2023. After declining from the high in April 2022, the University of Michigan Inflation Expectation jumped to 4.9% in February from 2.6% in November 2024.

Both indicators missed the CPI’s high point in July 2022—they were lower than the actual CPI of 9.1%. Historically, however, their predictions have been above the real value. The CPI has been rising since September 2024, though it is at around the same level as that in February 2017 and July 2018.

The Core PCE, the Fed’s preferred measure of inflation, declined to 2.65% in January after rising for three prior months. It has declined since the February 2022 high but is still above the ten-year high before March 2021.

The Bottom Line: Despite the downtrend, both inflation and inflation expectations are plateauing at levels above the Fed’s 2-percent target. While the downtrend has yet to reverse, the threat of tariffs has arrested its decline.

2) The US Market Indices Are in Correction Territory

Last week, the S&P 500 reached a correction level—it declined by -10.5%, on an intraday basis, from an all-time high. On February 17, 2025, the index made a Double-Top chart pattern, broke below its intermediate low, and achieved the pattern’s 161.8% extension target. The next support seems to be the 38.2% Fibonacci retracement—around 5125.00—of the rally from the October 2022 lows.

The Dow Jones Industrial Average declined by -9.8% from its highs. It has just broken below a double-top chart pattern with measured targets around 39,850 and 38,650. Its 38.2% Fibonacci retracement level is around 38,750.

The volatile NASDAQ Composite has suffered greater damage. It declined by -14.7% from its high. It also broke below a double-top chart pattern, with a measured target of 161.8%, around 16,600. Its 38.2% Fibonacci retracement level is around 16,340.

The Bottom Line: The major U.S. indices are undergoing a correction. While they haven’t yet entered bear market territory, there remains significant downside potential before the bulls regain the confidence to resurface with gusto.

3) The Dollar Has Lost its Mojo

The US Dollar index made a double bottom in September 2024 and broke above the pattern’s intermediate high following the US election. The index achieved the pattern’s 100% measured target around the 110.00 level, which coincided with the 61.8% Fibonacci retracement of the decline from the post-Covid high of 114.75 in September 2022 to the July 2023 low of 99.22. The index has been moving down since the new US administration’s inauguration in January and the threats of tariffs.

The Bottom Line: The dollar index presents a shorting opportunity with the next meaningful support below the 100 level, the low of September 2024. The British Pound and Euro present good buying opportunities with targets of 1.3423 and 1.1214, respectively.

4) The 30-Year US Treasury at a Critical Junction

The 30-year US Treasury briefly broke above the downtrend line from the March 2020 high in the last week of July 2024. However, the break was short-lived, as the bonds fell below the trend line following the 2024 election. Since then, the bonds have avoided making a new low and have again risen above the trendline. Nevertheless, their performance remains influenced by the uncertainty surrounding the impending tariff war and the Fed’s anticipated actions in the coming months.

The Bottom Line: The bonds have broken out of the downtrend but have yet to establish an uptrend. The 30-year US Treasury remains confined within a trading range between 120 and 115 levels.

5) The Commodities are on the Rise

Commodities are rising. The CRB index has risen by more than 3.5% since the beginning of 2025. It has been outperforming the S&P 500 since the 2024 election. It has also been near the upper limit of a trading range—between 316 and 250—since July 2022.

The Bottom Line: Commodities typically rally in the later stages of the business cycle, and their rally often precedes a recession.