Market Flash Report – February 2025

By Investment Research

Market Commentary

March 7, 2025

The S&P 500 experienced a challenging month, with the Magnificent 7 stocks selling off nearly 9% and marking their worst performance since late 2022, yet remarkably the S&P 500 remained only 3% below its all-time high. Corporate earnings demonstrated strength, with the S&P 500 reporting 17.8% year-over-year earnings growth—the highest since Q4 2021—and slightly better-than-expected revenue growth of 5.3%. Economic indicators presented a mixed picture, with January payrolls adding 143,000 jobs while inflation exceeded expectations, prompting Federal Reserve Chair Jay Powell to signal continued cautious monetary policy. Rising negative sentiment, fueled by policy uncertainty and potential tariff impacts, could potentially dampen consumer spending and market confidence in the coming months.

Key Takeaways

Market News: US equities sold off in February as policy uncertainty mounted and economic data came in mixed. Defensive sectors fared well but the Magnificent 7 stocks had their worst month since the end of 2022, selling off nearly 9%. Despite the noise, the S&P 500 ended February only 3% off its all-time high.
International Equities: Uncertainty surrounding fiscal policy led to increased volatility for US equities which allowed Developed Non-US to outperform by the widest margin since 2022. Chinese equities, despite the threat of tariffs, surged double digits in February and are up nearly 40% over the last year.
Earnings Season: The S&P 500 reported earnings growth of 17.8% YoY according to FactSet, which is the highest since Q4 2021 and up from 11.7% expected at the end of Q4. Revenue growth came in better than expected at 5.3% vs. 4.6% as well. However, estimates are moving lower for both top-line and bottom-line growth for both Q1 and calendar year 2025.
Mixed Economic Data: Payrolls for January were below expectations but were still robust at 143k jobs added. Inflation, on the other hand, came in above expectations and Fed Chair Jay Powell told Congress that they still had more work to do and were in no rush to lower rates. Possibly the largest shift during the month was negative sentiment especially as it relates to inflation and the possible effects of tariffs. Poor sentiment could lead consumers to become more conservative in their spending, especially if markets continue to sell off.

You cannot invest directly in an index; therefore, performance returns do not reflect any management fees. Returns of the indices include the reinvestment of all dividends and income, as reported by the commercial databases involved. Returns over one year have been annualized.

Bloomberg, Morningstar, treasury.gov. S&P Dow Jones Indices.

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DISCLOSURES

Past Performance Is No Guarantee of Future Performance.  Any opinions expressed are current only as of the time made and are subject to change without notice. This report may include estimates, projections or other forward looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. While we believe this information to be reliable, Pathstone bears no responsibility whatsoever for any errors or omissions.  Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest. Moreover, the information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. Any investment advice provided by Pathstone is client specific based on each clients’ risk tolerance and investment objectives. This presentation is not meant as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.

U.S. Large Cap Equity is represented by the S&P 500 Index. U.S. Small Cap Equity is represented by the Russell 2000 Index. Developed Non-U.S. Equity is represented by the MSCI EAFE Index. Emerging Market Equity is represented by the MSCI EM Index. Real Estate is represented by the FTSE NAREIT Index. Infrastructure is represented by the FTSE Global Core Infrastructure 50/50 Index. U.S. High Yield Debt is represented by the Bloomberg Barclays U.S. Corporate High Yield Index. Emerging Market Debt is represented by the Bloomberg EM USD Aggregate Index. U.S. Aggregate Bonds is represented by the Bloomberg Barclays U.S. Aggregate Bond Index. U.S. Treasuries is represented by the Bloomberg Barclays U.S. Treasury Index. U.S. Municipal Bonds is represented by the Bloomberg Barclays Municipal 1-10yr Index.