Market Recap: February 2025

Market commentary

• Consumer spending declined in January, the first drop in nearly two years.
• The unemployment rate fell but the potential of reductions in federal employment, which comprises nearly 2% of the workforce, looms.
• January imports surged, presumably from firms rushing shipments ahead of tariffs, which are scheduled to begin in March.
• Consumer Confidence declined by 7 points in February to 98.3, marking the largest monthly drop since August 2021.
• Conflicts and political instability around the world continue to negatively impact financial markets and economic stability. 

Select economic and market data

Equities

• Driven by concerns over inflation and tariffs, and despite mostly strong earnings, domestic equities retreated in February.
• With many of last year’s top performing stocks falling, the big-tech, growth-heavy Nasdaq declined nearly 4%.
• Small-cap stocks fell over 5%, while foreign stocks posted positive results.

Fixed income

• Yields dropped sharply in February, leading to strong, positive performance for fixed income investments.
• Higher-quality bonds did best in February, while high-yield bonds trailed, reflecting the pullback seen in the stock market.

Strategic outlook

• Some near-term caution warranted on equities, particularly in high-growth large-cap stocks following a period of significant outperformance; currently favoring small- and mid-cap domestic stocks longer-term.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.
• Near-average expected returns projected for fixed income after period of rising rates and bond market sell‐off.