Lexicon Financial Group Weekly Update — February 12, 2025

Feb 14

“Economics is everywhere, and understanding economics can help you make better decisions and lead a happier life.”

— Tyler Cowen, American economist, columnist, and blogger

From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel

Looking Around

Valentine’s Day occurs this week. And, almost on cue, the price of flowers (particularly roses), chocolates, jewellery and dining go up, as people celebrate in Canada, the United States (U.S.) and around the globe. The history of Valentine’s Day, however, is quite dark. We’ve included some links on the side bar, if you want to go down that rabbit hole. All of this said, it appears that U.S. imports of products for Valentine’s Day have avoided import tariffs in 2025. The story for 2026, however, could be significantly different. (1)

Romance is big business, and, like any business, operates within the rules of supply, demand, and consumer behaviour. Prices fluctuate based on cultural expectations and economic conditions. Spending on Valentine's Day reflects the current economic climate, consumer confidence, inflation, and jobs. When the economy is doing well, consumers usually spend more, and spend less when the economy is struggling. This is illustrated in the following chart.

Valentine's Day has evolved into a multi-billion-dollar industry. Social media has magnified romantic expectations because it enables individuals to showcase their gifts and experiences that leads to a culture of comparison and competition. The costs of celebrating love on Valentine’s Day include:

Gifts and Flowers: The price of roses often surges in February due to increased demand, demonstrating classic supply and demand principles. Florists and retailers expect this spike and adjust flower-growing patterns and prices to maximise profits during what is a peak season.
Dining Out: Restaurants capitalize on Valentine’s Day by offering special (and often more expensive) menus. Many establishments introduce fixed-price dinners with curated courses, which are marketed as exclusive experiences.
Jewellery and Luxury Items: Retailers view Valentine’s Day as one of the peak sales periods and aggressively market high-end gifts as ultimate expressions of love. The marketing here often emphasizes that nothing says "I love you" like a sparkling diamond or a luxury watch, which reinforces the association between material value and emotional significance.

The staggering scale of Valentine’s Day as an economic event is in the numbers. The U.S. tops the chart by a significant margin for average spending per person, with an astonishing US$192.50. According to Statista, it is predicted that in the U.S. alone, consumers will spend approximately US$ 6.5 billion on jewellery, US$ 5.4 billion on dinner, $5.4 billion on flowers and candy, and US$ 1.4 billion on cards this year.

The United Kingdom, which ranks second, has an average predicted spending per person that is significantly lower at a predicted US$52-70 for 2025. This is less than half the amount spent by the average American. This difference underscores the cultural and economic differences in how Valentine’s Day is celebrated across countries.

Valentine’s Day is culturally framed as a time to express love and affection through material gifts and special experiences. The fear of social judgment or being perceived as less committed can drive people to purchase extravagant gifts. But what does this have to do with investing, or more specifically, investor behaviour?

People experience the pain of loss more intensely than the pleasure of an equivalent gain. In terms of Valentine’s Day, the potential “loss” is emotional – the fear of disappointing a partner, causing relationship strain or appearing neglectful. This is a concept known as “loss aversion” in behavioural economics. This fear can motivate individuals to overspend in order to avoid the negative emotional consequences associated with perceived inadequacy or failure to meet their partner's expectations.

The scarcity principle adds yet another layer to the mix of Valentine’s Day spending. Limited time offers, exclusive deals, and seasonal products create a sense of urgency, exclusivity and scarcity. This scarcity taps into the fear of missing out (FOMO), forcing consumers to make impulsive purchases to secure what they perceive as rare or fleeting opportunities. Retailers exploit this bias through marketing tactics that highlight the limited availability of certain products, which drives up demand and, consequently, consumer spending. (2)

The best way to avoid behavioural traps mentioned above is to have a plan. And, while we can’t help you with flowers or chocolate, we’re always here to help with investments.

Read and Watch

Want deeper insight into topics in your Weekly Update? Then, read and/or right click:

What Impact Could Trump’s Tariffs Have on the Canadian Economy and Markets?

Jeremy Siegel: How Tariffs Could Impact the U.S. Economy

With Trump's tariffs looming - will countries scramble to cut deals?

Raymond James Markets & Investing: Earnings season off to a strong start – CIO Larry Adam, February 7, 2025

Raymond James Economy & Policy: A historical look at tariffs - Chief Economist Eugenio J. Alemán, February 7, 2025

Looking Back

Major stock markets in Canada and the U.S. all closed lower last Friday, in the wake of an announcement by President Trump that he plans to announce reciprocal tariffs on many countries this week. The markets did have a dismal start to last week, when Trump announced sweeping trade tariffs over the first weekend in February. His postponement of the tariffs on goods from Mexico and Canada did provide some relief though.

The S&P/TSX composite index (TSX) ended down after three straight weekly gains. Nine of ten major sectors ended lower last week, with the oil sector being the only exception thanks to a slightly higher oil price.

This move downwards by the TSX happened despite Canada’s economy adding more jobs in January than expected – 76,000 versus 25,000 jobs – and the unemployment rate unexpectedly dipping to 6.6 per cent. The current consensus is that there is now a 62 per cent chance that the Bank of Canada will cut its benchmark interest rate by a further 25 basis points in March. This is down from the 64 per cent before the release of the jobs data. (3)

Earnings-related headlines appeared to be a significant driver of sentiment in the U.S., as investors digested another week of consensus-topping earnings. According to data from FactSet, 77 per cent of S&P 500 Index companies that have reported fourth-quarter results through last Friday have posted consensus-topping earnings, with an average growth rate of 16.4 per cent compared to estimates for 11.9 per cent earnings growth. So far, 63 per cent of the companies that have reported have also surpassed sales expectations.

On the economic front, the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) last week indicated that factory activity in the U.S. expanded in January for the first time since 2022. However, ISM Manufacturing Business Survey Chair Timothy Fiore told reporters during a call that potential tariffs represent a “huge threat” to a sustained recovery in the U.S. manufacturing sector. The Labor Department reported that the U.S. economy added 143,000 jobs in January, down from 307,000 in December and below economists’ expectations for 170,000. This seems to support the narrative that the U.S. labour market is stable but gradually cooling. This softer-than-expected employment data seemed to help drive positive returns for U.S. Treasuries, as yields across most maturities decreased from where they ended the prior week (bond prices and yields move in opposite directions). It also looks like the market is also starting to price in the impact that tariffs could have on global growth and disinflationary pressures.

In Europe, the STOXX Europe 600 Index ended 0.60 per cent higher — slightly off a recent record level. Other major stock markets in Europe also rose, defying concerns about U.S. trade policy and stalling economic growth.

Japan’s stock markets lost ground over the week, as the strength of the yen weighed on the profit outlooks of Japan’s export-heavy industries.

Stock markets in China rose in a shortened trading week, thanks to evidence of strong consumer spending over the Lunar New Year holiday, offsetting President Trump’s decision to place a 10 per cent tariff on Chinese imports. Travel and retail spending over the Lunar New Year holiday, a key consumption period for China, pointed to improved domestic demand. Despite the solid holiday sales data, other readings signaled weakness in the broader economy. The Caixin China General Services Purchasing Managers’ Index (PMI) slipped to 51 in January, down from 52.2 in December. (4)

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.