Market Commentary

February closed out a negative month for stocks across all market indices. On February 19^th the S&P 500 hit a new all-time high, while the DOW and the NASDAQ were just shy of theirs. The Russell 2000 was nowhere close to its high but participated on the downside. All four indices retreated from then on into month-end.

The Magnificent Seven displayed pricing weakness most of the month but markets were helped to the upside by other contributors as the market breadth broadened out. Companies attached to the AI narrative witnessed profit taking and heavy trading to the downside post February 19^th.

S&P 500:                             Feb -1.43%             YTD +1.24%
DOW:                                   Feb -1.58%             YTD +3.05%
NASDAQ:                            Feb -3.97%             YTD -2.40%
Russell 2000:                    Feb -5.91%             YTD -3.46%

Sector Performance YTD through February:

Communication Services   +2.11%
Consumer Discretionary   -5.44%
Consumer Staples   +7.58%
Energy   +5.35%
Financials   +7.76%
Healthcare   +8.07%
Industrials   +3.31%
Technology   -4.30%
Materials   +5.36%
Real Estate   +5.91%
Utilities   +4.06%

Current U.S. Treasury Yields:

6 Month Bill             4.21%
2 Year Note             3.95%
5 Year Note             4.00%
10 Year Note           4.20%
30 Year Note           4.52%

The Economy and the Fed:

Consumer spending data from January retreated for the first time in two years. Construction spending and manufacturing activity came in weaker than forecast, and retail sales saw the largest decline in over a year. February layoffs were the most since 2020. Over 30% were government jobs.
The jobs report released today was weaker than expected, with an increase of 151,000 jobs. This was lower for the nonfarm payrolls estimate of 170,000. The unemployment rate moved higher to 4.1%. Housing is still problematic on the rate and availability front, while the housing shortage persists.

These numbers help support Wall Street’s latest Fed Rate cut targets for 2025. The May Fed meeting is now seen as a 50/50 chance for Fed Chair Powell to announce a cut. The weak economic data and posits on a possible recession may allow the Fed to cut before the economy hits their 2% inflation target. The 10-Year Treasury falling helps to support a cut.

Tariffs are thought to stifle growth for the economy. Treasury Secretary Scott Bessent feels that the tariffs will be a one-time price hike and most likely transitory. Daily news flashes from Washington D.C. keep it an extremely fluid subject for understanding long-term implications.

Looking Ahead:

Q4 earnings are pretty much done (97% of companies have reported). 75% of S&P 500 companies have printed positive EPS above consensus. 63% reported positive revenue surprises. Earnings growth is targeted at 18.2% for Q1. If that number is reached, it would be the highest since Q4 2021. Forward guidance has been evenly split with companies raising or revising downward.

Clear momentum stocks have started March on the ropes with profit taking. Financials, early 2025 winners, also have been dinged. The AI play seems to have hit a wall for Tech enthusiasts and the spillover into the Industrial and Energy sectors has been sharp.

There is over $7 trillion in Money Market Funds with roughly 4% yields. That money is ready to be deployed once the market is finished repricing risk. We continue to keep cash in client portfolios. Profit taking on equities and repositioning securities weightings in portfolios has been prudent. Fixed income offers a buffer to the equity price swings and we have added to some of our positions.

U.S. equities are still the safest place to invest in. Europe is two years behind the U.S. The market has broadened out away from the Magnificent Seven. Financials will rebound. The consumer is slowing but resilient. The market will settle down, adjust to the tariff confusion and economic slowdown in a short time period, to deliver positive results for 2025.