Key Highlights
- The S&P 500® was down 1.42% in February, bringing its YTD return to 1.24%.
- The Dow Jones Industrial Average® lost 1.58% for the month and was up 3.05% YTD.
- The S&P MidCap 400® decreased 4.44% for the month, bringing its YTD return to -0.83%.
- The S&P SmallCap 600® returned -5.84% in February and was down 3.16% YTD.
Market Snapshot
In February, the S&P 500 posted limited reactions to events in Washington (verbiage, executive orders and policies), instead viewing events as still being in motion and part of negotiations. “Limited” for February 2025 included an acceptable 1.42% S&P 500 decline and negative breadth, along with a decline in the Magnificent 7 (the -1.30% February total return loss would have been a positive 0.41% without the Magnificent 7, as the YTD 1.44% total return would have been 3.27%). While the outcome of the events mentioned may reshape the country and therefore the market, the more immediate concern was consumers, and if their new pessimism (as relayed via confidence and sentiment) would have them reduce spending, which would reduce corporate profits and, therefore, employment. Adding to that consumer pessimism was the uncertainty over government jobs, as well as the impact on private jobs, combined with a potential return of inflation (via tariffs). While employment remains strong and inflation significantly lower, perception drives consumers, and consumers steer the market’s perception of future profits.
The 500™ did set two closing highs in February, but it pulled back as uncertainty over consumer spending grew. The index posted a 1.42% decline (-1.30% with dividends) in February, after a broad 2.70% gain (2.78%) in January (December was -2.50%, -2.38%). The three-month return turned negative, at -1.29% (-0.97%), with the YTD period up 1.24% (1.44%) and the one-year gain 16.84% (18.41%); the 2024 gain was 23.31% (25.02%).
Target prices continued up, as the S&P 500’s one-year Street consensus target price increased for the 15th consecutive month to 6,905, a 16.0% gain (12.6% last month) from the current price and up from last month’s 6,804 (6,709 the month before that), after declining for two consecutive months, which followed 11 consecutive months of gains (which was after 9 consecutive months of declines). The Dow®’s target price also increased for the 15th consecutive month, to 49,391, a 12.7% gain (9.6% last month) from the current price (48,838, 48,092), after two consecutive months of declines, which was after three consecutive months of gains.
The market started the month with the expectation that tariffs on imports would start on February 4, at 25% for Canada (10% for some Canadian energy) and Mexico, with a 10% tariff for China, as global markets sold off, the U.S. dollar strengthened and interest rates held steady, with diverging movements seen in crypto (down) and gold (up).
The 500 opened 1.17% lower on February 5 (it was down over 2% in pre-market trading) and fell to -1.93% at 10:20 a.m., when Mexican President Claudia Sheinbaum said the U.S. had agreed to a one-month pause in tariffs. Prices then recovered, further supported after an agreement for 30 days was reached with Canada later in the day, with the day closing the session off 0.76%. China’s tariffs did go into effect (10%), and it retaliated with specific tariffs, including a 15% tariff on U.S. coal and liquified natural gas, as well as a 10% tariff on oil and machinery. Markets recovered Tuesday, as the delays on Canadian and Mexican tariffs were interpreted as first steps to negotiating a deal, with the limited Chinese retaliation also seen as a work in progress. Because of this, The 500 recovered most of its Monday losses, adding 0.72% for the day.
Trump signed an executive order setting in motion a 90-day plan to create a U.S. sovereign wealth fund. Currently, 23 states have such funds (with assets of approximately USD 332 billion), with many having secured income flows (such as the Alaska Permanent Fund, which uses oil revenues). The key setup question for the fund will be where the initial seed money will come from, given that there is no “excess cash” in the U.S.
