March 5, 2025
U.S. stocks slipped in February as investors took stock of weaker economic and consumer reports and tariff scenarios. The broad market, as measured by the S&P 500 Index, declined 1.3%. Staples (+5.7%) and real estate (+4.4%) were the best performing sectors, while discretionary (-9.4%) and communications services (-6.3%) were the worst. Within the large-cap space, high beta and high momentum shares were hit the worst. Accordingly, growth lagged value in the large-cap and mid-cap market ranges.
The January CPI¹ report was hotter than expected and any progress toward a core rate of 2.0% seems stalled. As such, we believe the Fed is on hold with regard to any additional rate cuts. The labor market remains healthy for now, although as mentioned last month job growth may suffer a temporary hit from LA fires, immigration crackdown/deportation issues remain, and now the effect of government layoffs could also come into focus. Reported retail sales were weak and consumer sentiment/activity may be tested in the period ahead as tariff headlines come and go. Corporate bond spreads, both investment grade and high yield, widened a bit during the month, although both remain well below (tighter than) historical averages. Lastly, recent stock market volatility, while not enjoyable, has cooled bullish sentiment and from a technical standpoint, we believe this is a good thing.