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Financial Market Commentary

Monthly Market Commentary

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These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

Latest Commentary:

February 2025 Market Recap

As of March 10th, 2025, 3:01pm

  • After the worst week for stocks since September, tariff uncertainty is dragging stocks down again this morning. At the open, the S&P 500 drawdown is over 7% and the Nasdaq’s is over 11%.
  • Until markets get some more clarity on where tariffs and trade relationships will settle out, staging a comeback rally may prove difficult.
  • Pullbacks of 5–10% are quite common — the S&P 500 averages three of them per year. Corrections (10–20% drops) are less common, but we may be due for one. The S&P 500 experiences one 10% correction per year, on average. The last one came back in October 2023 when the index fell 10.3% from peak to trough.
  • The maximum drawdown for the S&P 500 has averaged about 14% per year since 1980. In positive years, the average maximum drawdown is still 11%. Simply put, this amount of volatility is normal. It reminds us why diversification is important and gives long-term investors an opportunity to buy stocks “on-sale” and enhance returns over time.
  • We would expect the market’s bottoming process to begin playing out once markets get some clarity on where tariffs might land and can adjust economic and profit expectations accordingly. That timetable is more likely to be measured in months rather than weeks.

Here we are two months into 2025 and many investors are caught between being positive and negative about the outlook for investment markets and the economy.  January was a good month across the board with expanding U.S. market breadth and rallying overseas markets.  What followed in February turned much of the optimism on its head as investors were confronted with aggressive tariffs announced by the Trump administration raising concerns about trade wars, slower economic growth, and more inflation.  Add in the headline grabbing DOGE campaign against government spending and it is no wonder that most of the equity markets across the U.S. took a pause and then turned negative for the month while the 2025 rally in European markets continued.  On the other side of the 60/40 portfolio, bonds came through in their diversification role delivering positive returns led by the decline in interest rates.

Investors are right to feel uneasy about the direction of the markets at this point.  It seemed that each day in February brought something new into the mix, be it a new trade policy shift, changed fiscal or government mandates, company earnings announcements, or a warning about something that had peaked or hit a new low.  Even the Fed appeared to be sorting through a changing landscape of data. We believe it is best for investors remain focused on their long-term investment plan but aware of potential market changes that could support small adjustments such as rebalancing.  There is likely to be more market turbulence as new developments come out of Washington that will impact the US economy and global markets.

Overall

  • The S&P 500 Index was down 1.3% in February, is up 1.4% YTD and is up 18.4% on the trailing one year. 
  • The MSCI ACWI ex USA MSCI Index was up 1.4% in February, up 3.4% YTD and is up 2.8% on the trailing one year.
  • The Bloomberg Aggregate Bond Index was up 2.2% in February, up 2.7%YTD and is up 5.8% on the trailing one year.

Domestic Equity

  • February was a challenging month for US stocks as concerns about inflation, consumer sentiment and trade policy weighed on many market leading stocks and sectors. 
  • The selloff in US stocks was broad with small caps underperforming large caps and growth stocks lagged value as defensive sectors held up.  The impact of tariffs and potential for slowing growth were key factors driving the selloff.   

International and Global Equities

  • Foreign developed market stocks outperformed the US for the third straight month, extending a recovery rally supported more by forward looking optimism than strong earnings data. 
  • China carried the emerging markets in February, buoyed by a renewed commitment to their tech sector.  Mexico also outperformed while other countries posted negative results for the month.     

Fixed Income Markets

  • Bonds performed well as investors sought protection from equity volatility.  The US 10YR Treasury yield fell by 32bps in the month, contributing to the index's 2.2% return.

Specialty Markets

  • REITs rallied on the decline in interest rates while commodities were mixed with oil off 5%, natural gas was up 20% and gold moved higher.

US Equity Sectors

  • Defensive sectors were the winners in February with Consumer Staples, Energy and REITs top performers.  Consumer Discretionary (-9%) and Communications Services (-6%) were the worst performing sectors.

Dear Valued Investor,

As spring approaches and the weather warms, the U.S. economy has begun to cool. After a sizzling recovery from the pandemic, followed by a period of surprisingly solid and steady growth on the back of resilient consumer spending, the economy finally seems poised to downshift to its pre-pandemic trend near 2% growth. Recent confidence surveys suggest consumers may pull back some and jobs are a bit tougher to get. But consumers remain in good shape financially overall — particularly upper-income folks who drive most of the spending. In fact, the top 10% of income earners are now responsible for about half of all spending.

Slower growth may be good for stocks because it helps ease some of the inflation pressure and can pave the way for more Federal Reserve (Fed) rate cuts. We’re talking about a slight cooldown, not a collapse. Reaccelerating inflation is probably a bigger risk than recession, even after weak economic data last month. We’ll take our chances with a gradual slowdown from last year’s unsustainable pace near 3% growth.

Slower growth and easing inflation pressure will keep Fed rate cuts in play and prevent big up moves in interest rates that could weigh on stock and bond returns. With bond yields down this year but still attractive, 2025 is shaping up to be a good year for fixed income investors. Although stocks are off to a slow start on tariff concerns, cooling inflation and stable yields are key ingredients for the bull case.

Another key ingredient for the bull case for stocks is strong earnings. Corporate America delivered in the fourth quarter, as S&P 500 companies grew earnings per share by over 18% year over year. Although strategists’ expectations for double-digit earnings growth in 2025 may be too high, especially if tariffs stick and prompt more retaliation, the earnings outlook is good enough to support stock gains.

This year has brought new stock market leadership. The average “Magnificent Seven” stock — the largest seven technology companies — has fallen about 9% so far this year, while the average S&P 500 stock is up slightly. As some doubt the staying power of the artificial intelligence-fueled rally in the big tech stocks, others are finding opportunities rotating to other areas — the normal evolution of a maturing bull market.

Tariffs remain a near-term threat. Although exceptions, reductions, delays, or complete reversals may come, some tariffs will stick. Retaliation by trading partners will likely weigh on U.S. economic growth. Prices on some items will rise, as foreign producers and currency adjustments can only absorb so much, making the Fed’s job tougher. Expect some impact on importers’ profits in certain industries, such as autos, food and beverages, and certain segments of retail. But don’t expect tariffs to derail corporate America’s AI-driven earnings gains.

Expect a positive year for stocks on the back of steady growth in corporate profits, but likely with more bumps along the way as the economy slows and policy uncertainty remains elevated.

Thank you for trust along your financial journey.

 scott headshot
 
Scott Krase
Wealth Manager
SKrase@CGOFinancial.com
630.810.9100
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Investment Advisory Services offered through Global Retirement Partners, LLC DBA Connor & Gallagher OneSource, an SEC registered investment advisor.

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Disclaimer:

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. Connor & Gallagher OneSource doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, Connor & Gallagher OneSource makes no representation as to its completeness or accuracy.
 
*Securities offered through LPL Financial, Member FINRA & SIPC.  Investment advisory services offered through Global Retirement Partners, LLC DBA Connor & Gallagher OneSource, an SEC registered investment advisor.  Connor & Gallagher OneSource and Connor & Gallagher Benefit Services are separate entities from LPL Financial.

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