The Economy’s Weekly Recap

2/17/25 - 2/24/25

Raymond Lin

This Week’s Prominent Events

A Shaky American Economy 

• Compared to many of its peer economies, America has an impressive economic streak, reporting both higher GDP growth and lower inflation than European nations. However, there are some emerging signs of America’s weakness that materialized on Friday in the form of a sudden market selloff.

• The Dow Jones fell by 1.7%, as did the S&P 500, and the Nasdaq drooped by 2.2%. The immediate catalyst for this selloff was the release of the University of Michigan’s consumer confidence survey index, which showed that consumer confidence had declined 10% from last month, reaching a low of 67.8 that hasn’t been seen since June 2023. Inflation expectations for 1 year from now were found to be 4.3% and the 5 year expectation was 3.5%, both of which are higher than January’s recent high of 3%. This painted a depressed outlook by consumers and spooked investors, who are fearing that this poor outlook and are forecasting decreased future consumer spending and economic growth.

• Other events also contributed to Friday’s selloff though, like the release of February’s PMI index, which measures month-on-month changes in US goods and service production. The index’s baseline is 50, so if it is above 50, US production is growing. The index reached a 17 month low of 50.4 after reaching a 3 year high of 55.4 in December, signaling slight growth but primarily a steep deceleration from prior months. Walmart’s quarterly earnings, in which it forecast slowed future revenue growth, painted a similar picture and also contributed to Friday’s stock decline.

• With the implementation of tariffs in the coming weeks, whether or not the fears of investors are valid will become increasingly clear. However, in the meantime, the economic uncertainty brought about by recent events will persist.

New Infrastructure Investments

• With the growth of AI, tech companies have begun pouring tens of billions into data centers to expand their operations and gain an edge over competitors. However, another emerging but under covered area of physical infrastructure intended for digital usage can be found in sub sea internet cables.

• Following Google’s announcement of constructing two $1 billion sub sea in 2024, Meta seems to have also joined in on the fun, launching Project Waterworth, a plan to build the world’s longest sub sea cable at 50,000 kilometers. It will stretch across the world, connecting the US, Australia, India, Brazil, and other countries, and is estimated to cost $10 billion. According to Meta, the investment will “enable greater economic co-operation, facilitate digital inclusion, and open opportunities for technological development in these regions”, a claim supported by the fact that 95% of internet traffic is believed to be conducted via sub sea cables.

• The cable will expand upon Meta’s partial ownership of other cables, helping to decrease the risk that geopolitical conflict that Meta is exposed to. By connecting so many countries with the cable, Meta lessens the probability that any nation would be cut or otherwise sabotaged, as some civilian ships reportedly linked with China and Russia have done in the last few months. Additionally, Meta’s careful avoidance of hot spots near like in Europe, the Suez, and the South China Sea decrease the risk of disruption, ensuring Meta’s operations will go unperturbed.

Losing Its Spot

• Since 2013, Walmart has topped the Fortune 500, making the highest quarterly revenue of any company. However, this has come to an end as Walmart’s Q4 results were announced. Its Q4 revenue of $180.6 billion and operating income of $7.9 billion met analyst expectations, capping off a successful year that saw 5.1% annual revenue growth and 8.6% annual operating income growth. Additionally, Walmart’s 20% Q4 e-commerce growth was a marked improvement. 

• However, slowing growth has begun to beset the company as its Q4 revenue was second to Amazon’s $187.8 billion, which means Walmart has officially been unseated from its top spot. In addition to this admittingly esoteric change, Walmart also shared its forecasts for this year, and investors were soundly disappointed. Even without incorporating tariffs, Walmart anticipates revenue growth of between 3 to 4% in 2025, below Wall Street’s estimates. This resulted in Walmart’s shares falling 6% on Thursday. However, Walmart’s stock is still up 62% annually, and its growth is still worth lauding, even if it is below expectations.

Coinbase’s Victory

• Under Gary Gensler’s leadership, the SEC took an aggressive stance toward regulating cryptocurrency, especially after the collapse of FTX in 2022. But with Trump’s ascendancy and his about face on cryptocurrency, many investors have anticipated that less restrictive regulation would soon materialize, a belief that has come true as of last week.

• Last Friday, Coinbase announced that the SEC’s 2023 lawsuit against it had been dropped by the SEC with no fines or punishments. This lawsuit was about whether Coinbase had placed its customers in financial harm by hosting digital currencies and threatened Coinbase’s core operations as a cryptocurrency trading platform. If the lawsuit had been successful, it likely would have limited the number of cryptocurrencies that could be legally traded and imposed a fine on Coinbase.

• The SEC dropping the lawsuit signals a change in policy and a lighter regulatory hand. With Trump’s own skin in the game, it is also likely any regulations will only target the bare minimum for cryptocurrencies. This anti-regulation stance will likely only be consolidated once Trump’s nominee for SEC chair Paul Atkins is confirmed. 

Nikola [And] Tesla

• Although both companies drew their names from famed inventor Nikola Tesla and developed EVs, their stories couldn’t be more different. One has been a financial failure with a CEO in prison while the other is one of the world’s most valuable companies. Still, there is one recent similarity in their struggles to expand at a time when enthusiasm for EVs has died down.

• Once valued at $30 billion, Nikola has long been unprofitable, losing $134 million in Q2 2024 and $200 million in Q3. Additionally, it only produced 77 and 83 trucks in those quarters, showing little room for growth or profitability. Thus, with just $47 million of cash on hand, Nikola filed for Chapter 11 bankruptcy to reorganize its operations, bringing its stock down over 50%, which is now down 71% YTD.

• However, Nikola isn’t the only EV company facing challenges. Tesla, faced with increasing Chinese competition, missed revenue and EPS expectations in Q4, having just $25.71 in revenue and EPS of $0.73 compared to expectations of $27.26 and $0.76. This solid miss is worsened by the fact that this is Tesla’s first fiscal year reporting an annual decline in sales, although the decline is only 1%. Furthermore, automotive revenue fell 8% from Q4 2023, operating income fell 23% annually, and net income dropped 71% year over year. In Europe, consumer backlash against Elon Musk’s political affairs has led to Tesla vehicle registrations in January to drop 59.5% in Germany, 63% in France, 38% in Norway, and 8% in the UK year over year. Tesla’s stock has remained relatively elevated compared to earlier in the year though because of optimism surrounding Musk’s close relationship with the new Trump administration and Musk’s promises of robotaxis and a cheaper Tesla model in 2025.

Future Events

Trump’s Tariffs

• Trade has underpinned American growth and consumer goods for many years, but it seems increasingly under threat under the new Presidential administration and its liberal usage of tariffs as an economic and political tool. As companies across sectors like energy, manufacturing, automobile, and retail are affected, it’ll be important to note what tariffs are being implemented.

• So far, Trump has primarily targeted 3 countries with tariffs: Mexico, Canada, and China, our top 3 trading partners. A 25% tariff on goods was planned for Mexico and Canada but delayed for a month due to Canadian and Mexican border concessions. Meanwhile, a 10% tariff for Chinese goods, affecting hundreds of billions of dollars of trade, took effect on February 10th. China has responded by issuing a 15% tariff on American coal and natural gas as well as a 10% tariff on crude oil, agricultural machinery and large engine cars. So far, nothing has been announced about the Mexican or Canadian tariff delays, so they will take effect in March.

• The Trump administration has also targeted specific sectors with tariffs, including…

  • 25% tariffs on all steel and aluminum imports taking effect on March 12.

  • tariffs in the neighborhood of 25% on semiconductors, automobiles, and pharmaceuticals.

  • other sectors to be announced following the April 1 completion of Trump’s tariff recommendations plan.

• The tariffs are anticipated to harm US economic growth, and they undermine both the wallets of US consumers and international trade, creating select winners who will benefit amidst many who will suffer.

AI Copyright Lawsuit

• Many questions have arisen with the development of generative AI, and one that threatens the future of these models is the legality of their training. Generative AI is trained on data created by humans to achieve further technological development. However, this data has often been copyrighted material, which has sparked furious reactions from individual novelists all the way up to the New York Times, leading to over 38 AI copyright lawsuits being filed.

• Little has come of these cases so far as they’ve been dismissed or moved slowly through the courts, but the first major ruling was decided in Thomson Reuters v. Ross. In the case, Thomson Reuters was alleging that legal AI startup Ross Intelligence had reproduced material from Reuter’s Westlaw law research firm. The judge presiding over the case found that “None of Ross’s possible defenses holds water. I reject them all.”

• Although Ross Intelligence has been defunct since 2021, the court case is still a major blow for AI companies as it suggests that future legal interpretations of fair use may find AI companies’ claims of fair use to be irrelevant, limiting future AI development. Nonetheless, companies with far more legal resources like Meta, Microsoft, and others will fight their legal battles for the next few years to ensure they can develop and offer capable AIs.

Continued Housing Malaise

• It's sometimes said that “things will get worse before they get better.” This message ought to be forwarded to hopeful homeowners as the housing market seems to be worsening. The median home price reached a record for January at $396,900, up 4.8% from last year. Additionally, mortgage rates topped 7% last month and have remained around that level since alongside rising insurance and property tax costs. This has all made for a hostile environment for new buyers, resulting in a 4.9% monthly decline in home sales, higher than expert estimates of 2.6%. However, home sales were still up 2% from last January.

• Additionally, there are some signs of hope. The supply of housing has been rising steadily, with 1.18 million homes for sale by the end of January, up 3.5% from December and 16.8% from last January. New housing completions in January rose 7.6% from December and 9.8% from last January. This increased supply of housing will likely help alleviate high home prices, although the impact of increased housing varies greatly region by region.

Weekly Question

How many days has it been since the last Phi Fiscal newsletter?

• A: 91 days

• B: 30 days

• C: 44 days

• D: 67 days

Answer: A. I’m a bit ashamed to admit it, but life has been busy. Fortunately, I’m now back to writing for Phi Fiscal, and you expect the most important business and economic developments in your email every Monday!