In what was a turbulent month, US markets weathered significant economic headwinds with surprising resilience. 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.
Source — Bloomberg, Morningstar, treasury.gov. S&P Dow Jones Indices.
Disclosures
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