February 2025

The S&P 500 fell -1.4% in February as forward-looking investors become increasingly apprehensive about the markets. Backwards data has been solid- the economy expanded at a decent clip in Q4, bringing real economic growth to 2.8% in 2024, powered by consumer spending. While the jobs report showed momentum heading into year-end. Inflation has started to pick up, but with this solid economic data, the Fed decided to put a hold on cutting interest rates again. However, the stock market doesn’t drive looking through the rear-view mirror. A slow-moving economy is always vulnerable to any kind of shock, and the geopolitical tensions and the current administration’s policy uncertainty have definitely heightened market volatility. Tariffs are the big story today, which will raise prices further for certain goods, but it’s difficult to determine how those particular goods will impact long-term inflation across the economy. Similarly, the US economy relies heavily on the private sector for job creation, so it’s difficult to determine the impact of the federal job cuts to the overall employment environment. Either way, moderating any type of economic growth could weigh on company earnings, leaving investors vulnerable to stretched valuations. Markets hate uncertainty, and there is plenty of it right now, and is a stark reminder to understand your investment horizon. Negative volatility is part of investing, and occurs during all bull markets, so ensuring that you’re investing for the long-term is critical (especially now), as trying to time when markets will return higher will be impossible.

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