There’s been no shortage of headlines lately around inflation, tariffs, and stock market volatility. But when you take a step back and look at the data—and what markets are actually signaling—you might come away with a more balanced view of the economy and the road ahead.
Let’s start with a data point that hasn’t gotten much attention: the NFIB Small Business Optimism Survey for February (The Survey). Only 16% of small business owners said inflation is their most important problem—the lowest reading since October 2021. In fact, more businesses are now concerned about labor quality than inflation. That’s meaningful, especially when you contrast it with broader consumer sentiment surveys like the University of Michigan index, where inflation expectations have jumped.
One of the most closely watched economic reports this morning is the February Consumer Price Index (CPI). According to the U.S. Bureau of Labor Statistics, the CPI rose 0.2% for the month, a noticeable cooling from the 0.5% increase in January. On a year-over-year basis, inflation is running at 2.8%, continuing a steady downward trend from the peak levels seen in 2022. This softer reading reinforces the idea that inflation pressures are easing, aligning with what many small businesses are already reporting—and it could give the Federal Reserve more flexibility to consider rate cuts later this year. (US Bureau of Labor Statistics).
Meanwhile, stocks have had a rough few weeks. The S&P 500 is down 10% in just 20 trading days—one of the fastest corrections on record. The culprits? Rising concerns about a renewed tariff war, government spending cutbacks, and policymakers' lack of market-friendly messaging. The sudden drop triggered forced selling and margin calls, amplifying the panic.
Interestingly, though, non-U.S. stocks have outperformed during this selloff, even though many regions affected by U.S. tariffs are overseas. That suggests global markets may view the tariff headlines more as political posturing than an actual economic threat.
At the same time, the bond market is showing more resilience, particularly in high-yield credit. Why? Investors believe a “Fed put”—a willingness by the Federal Reserve to ease policy if conditions deteriorate—is still in play. Rate cut odds for May have jumped to 54%, and the bond market is now pricing in 3.4 rate cuts in 2025, more than the Fed’s official guidance.
Here’s the silver lining: Historically, when stocks have dropped 10% this quickly, they tend to bounce back strongly. In similar past cases, the market was up an average of 6% one month later, 15% six months later, and 21% a year later. Of course, nothing is guaranteed, but history shows that sharp corrections often create opportunity—not just risk.
So, what’s the bottom line? While the market is clearly discounting a lot of bad news, there are still positive signs under the surface. Inflation pressures appear to be easing, rate cuts are likely ahead, and the panic selling may have run its course.
In times like this, staying disciplined and focused on your long-term plan is more important than ever.