February 2025 was a month marked by mixed signals across global markets. Potential policy changes by the Trump administration filled headlines, leading to uncertainty and concerns regarding economic growth. As a result, U.S. stocks underperformed international stocks, value stocks outperformed growth, and bonds rallied.
The S&P 500 index declined by 1.3% in February. The “Magnificent 7” stocks, which had previously carried much of the index, experienced notable decreases, collectively falling by over 5.7% for the month. Conversely, the remaining 493 stocks in the index posted a positive gain of 0.9%. Value stocks increased by 0.2% this month, while growth stocks decreased by 3.7%, resulting in a 6.5% difference between the two year to date. Small and mid-cap stocks underperformed their larger counterparts as they were down 5.7% and 4.4%, respectively.
In contrast to the U.S., Foreign Developed and Emerging Markets fared much better, primarily driven by a weaker U.S. dollar and improving economic data out of Europe. Foreign Developed stocks added 2.0% and Emerging Markets logged a 0.5% gain. Chinese stocks were the standout performer, rising 11.8% in February as Chinese technology stocks benefitted from the positive momentum following DeepSeek’s alleged cost-efficient artificial intelligence breakthrough.
In fixed income markets, The US Aggregate Bond index was up 2.2% as investor demand for safety increased. The 10-year Treasury yield declined to 4.24% after peaking in January at 4.79%. Shorter term interest rates remained steady as the Fed continued to digest inflation and labor market data.
Economic indicators for February painted a picture of a slowing economy. In fact, the Atlanta Fed's GDPNow forecast projected a 1.5% contraction in Q1, driven by slowing consumer spending and exports. Unemployment fell to 4.0%, and labor force participation rose, indicating some resilience in the labor market. However, public projections for future inflation spiked, fueled by rising prices for essential goods like eggs.
February 2025 was a month characterized by increased uncertainty and divergence within and between asset classes. While Foreign Developed and Emerging Markets showed strength, U.S. equities struggled. As we move forward, undoubtedly headlines will continue to flow in, and markets will react. It is vitally important to maintain a long-term perspective and quiet the noisy headlines and short-term fluctuations.