Hello all - we hope had a nice February.
For the markets, February started out nicely, but the latter part of the month saw stocks move sharply lower. In the end, the Dow lost 1.6%, the S&P 500 fell 1.3% and is now flat on the year, and the Nasdaq, which has a higher concentration of tech stocks, plunged 4%.
For the markets, February started out nicely, but the latter part of the month saw stocks move sharply lower. In the end, the Dow lost 1.6%, the S&P 500 fell 1.3% and is now flat on the year, and the Nasdaq, which has a higher concentration of tech stocks, plunged 4%.
Here’s a chart of the markets this month:
Bonds were again an interesting story this month. Bond yields have been falling sharply (so bond prices are rising), which has been attributed to worries about the economy. Investors sell stocks and move into bonds, pushing up the price and pushing down the yield.
Gold was another big story. Like bonds, investors have been pouring into gold on worries of a global trade war. Gold prices are at record highs.
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TRUMP
Nearly all the moves in the market this month were due to President Trump. It’s simple to explain - when tariffs were announced, the market fell. When it looked like tariffs would be postponed, markets rose.
Here’s a look at the how it played out:
- 10% tariffs announced on Canada and Mexico
Stocks fell
- 10% on China
Stocks fell
- Tariffs on Canada and Mexico put on hold
Stocks rose
- 25% on steel and aluminum
Stocks fell
- Reciprocal tariffs on everyone
Stocks fell
- Possible copper tariffs
Stocks fell
- 25% on the EU
Stocks fell
- 10% tariffs on Canada and Mexico – back on
Stocks fell
- Another 10% on China
Stocks fell
We can decisively say, the enthusiasm among investors for the Trump presidency has disappeared. As an investor, there is nothing more frustrating than random policy announcements that have significant impacts on the market. It makes our markets uninvestable.
In fact, we’re seeing more investors put their money overseas as European markets have seen a solid rise. The European Stoxx index (like our S&P 500) is up nearly 10% this year. The S&P is flat. It’s not a coincidence.
Businesses are extremely frustrated, too. They are unable to make plans for their operations when major policy changes are haphazardly announced.
Additionally, manufacturing cannot be found in the U.S. in the way policy leaders think, and the cost is too high to build here. Tariffs to bring manufacturing back to the states will probably backfire and result in higher prices for everyone.
Maybe these random tariffs on our friends and foes alike will result in something positive in the long run. Maybe this is just posturing to get the upper hand in negotiations. Right now, though, it is causing serious headaches for investors.
Additionally, manufacturing cannot be found in the U.S. in the way policy leaders think, and the cost is too high to build here. Tariffs to bring manufacturing back to the states will probably backfire and result in higher prices for everyone.
Maybe these random tariffs on our friends and foes alike will result in something positive in the long run. Maybe this is just posturing to get the upper hand in negotiations. Right now, though, it is causing serious headaches for investors.
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EARNINGS
Corporate earnings for the end of 2024 have been coming in this month and the results have been very solid. Earnings are on pace to grow 18%, the highest level since 2021. Revenue, or what a company earned in their sales, is up 6%. These are very good numbers.
Unfortunately, the earnings news has been drowned out by news from Washington and have had little impact on the markets.
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ECONOMY
While there are economic concerns out there, most of the indicators we follow look a little more positive.
First, we’ll look at the bond yield curve, which is something we’ve talked about a lot recently.
The last few months we’ve posted these charts that showed when the green line pops back above the solid black line, a recession follows. This month, we’ve zoomed in on that chart to show the green line is no longer rising. It still tells us a recession is out there, but its probably not coming soon.
The next chart shows a different bond maturity, and its clearer that a recession is not as likely right now.
The leading indicators we post every month again showed a decline, so that does remain a concern.
An estimate for the strength of the GDP for the first quarter of this year took a surprisingly sharp drop on recent data. This is concerning.
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INFLATION
Let’s take a look at the inflation data from this month, where the annual inflation rate seems to be on the rise again.
That metric is looking at inflation from an annualized measurement (counting the previous 12-month numbers). When you look at inflation month-by-month, inflation is still rising and prices continue to go higher.
When excluding energy and food from the calculation (which economists call the “core” measurement), we can see inflation still rising solidly every month.
As for inflation at the business level, or the PPI, it saw yet another monthly gain.
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OTHER ECONOMIC DATA
Economic data released this month was mixed.
The manufacturing side of our economy showed a solid improvement, though the service side was a little weaker.
Retail sales saw its first decline in five months.
Durable goods (these are items with a longer life, like a phone or refrigerator) was flat.
Consumer confidence figures were big news this month as they all fell sharply. The constant tariff drumbeat and sour mood in the press sent consumer confidence down by the most in three years.
Small business optimism fell too.
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Where does the market go from here?
We think stocks are at an attractive level here. Frankly, they’ve felt like they want to go higher all month, but were slammed lower with every tariff announcement. Investors have to stay on their toes, though.
What makes us optimistic is that investors are very pessimistic. It’s a good signal that often happens at market bottoms.
Here’s a look at investor sentiment:
Another good sign is we are entering a historically positive time of the year for the markets.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
