Clearview Portfolio Consulting February 2025 Recap

Key Points:

  • There was no shortage of policy coming from Washington to start 2025.
  • Equity markets fell in February as the impacts of tariffs get priced into markets.
  • The laggards from 2024 have moved ahead to start the year with value, stocks, international stocks and bonds outpacing the S&P500.

After a barrage of new policies coming out of Washington from the Trump administration, markets struggled to digest elevated inflation, tariffs, DOGE and their impact on the economy.  US equity markets retreated in February with the S&P500 falling 1.3%, the Dow Jones Industrial Average dropping 1.4% and the NASDAQ Composite down 3.9%.  Value stocks outperformed growth stocks for the month as volatility hit the most expensive areas of the market.  Consumer discretionary stocks fell 9.4% with Amazon and Tesla down over 10%.  Communication services, which had been one of the best performing sectors in 2024, dropped 6.3% in February.  Investors shifted toward less expensive defensive sectors like consumer staples +5.7% and energy +4%.  Small cap stocks fell 5.4% amid the uncertainty.

Consumer prices rose 3% in January compared to a year ago which may limit Fed rate cuts for this year.  The US economy is still growing but there are many variables at play.  Whether the tariffs on Mexico and Canada are short-lived from a deal to secure the US border and or and lower the respective trade deficits is unclear.  Tariffs (and counter tariffs) may reignite inflation higher and could lead to lower global economic growth.  International markets moved higher again in February with the MSCI EAFE Index gaining 1.9%.  Emerging markets were slightly positive despite a strong rebound in China +11.8%.

Volatility in stocks saw Treasury bond yields move lower (increased demand for bonds) across the curve.  Bonds outpaced stocks for the month with the Bloomberg US Aggregate Bond index gaining 2.2%.  Long-dated Treasuries were the best performer while high yield corporates lagged the index.  While two months does not make a trend, we have experienced a reversal in asset class performance from 2024.  Value stocks are outpacing growth stocks, international stocks are doing better than the US and bonds are outperforming stocks. Diversified investors rejoice!

The Magnificent 7 stocks that propelled the market higher over the last two years may be vulnerable to trade disputes.  Apple reported almost 60% of its revenue from international sales last quarter. For Microsoft, Google Tesla and Facebook, revenues were close to 50% outside the US. There is sure to be pressure from inside and out to resolve some of the trade imbalances across the globe. Expect elevated volatility along the way.

Sources: Morningstar Direct, Wall Street Journal, T.Rowe Price