January was an eventful month, but the markets finished strong. Below is a summary of the market update for February. To see our full market update, please watch the video at the bottom of this email.
Macro Stance:
Market trend remains positive.
The S&P 500 increased by over 2%
Expect resilience with volatility this year
Fed policy downgrade to neutral with the rate pause
The Fed has paused rate cuts, keeping rates at 4.25%–4.5%.
The Fed removed mentions of inflation progress, signaling a more cautious stance.
Two to three rate cuts are still expected in 2025, but timing is uncertain.
Fiscal policy remains positive
Fiscal policy remains positive, with the federal deficit estimated at 6.3% of GDP for 2025.
Leading economic indicators remain neutral
Job growth remains strong, with 256,000 jobs added in December (vs. 155,000 expected).
Inflation remains sticky but recently came in below expectations.
Valuations continue to be neutral
US market valuations around all-time highs
Earnings drive the US market forward.
Market Regime:
The market fluctuated between mixed and reflation but remains in the reflation quadrant.
This supports a "risk-on" environment, where inflation is rising alongside economic growth.
Business Cycle:
The cycle remains mixed between mid and late stages.
Recession risks are low, supported by strong wage growth.
Key risks: policy missteps related to tariffs and Fed rate management.
Key Questions We’re Monitoring:
What does a strong January mean for the rest of 2025?
Could tariffs derail market performance?
Should we all be cheering for the Chiefs?
Market Performance:
The S&P 500 had its best January since 2023.
A >2% return in January historically signals a strong year (average 18% annual return, positive 88% of the time).
Markets tend to trend; a strong January often leads to continued strength.
Tariffs & Market Impact:
Recent tariffs on Canada, China, and Mexico have introduced volatility.
Delays in implementation provide some temporary relief.
Historical precedent (2018) suggests tariffs can trigger short-term market declines but not necessarily long-term downturns.
Should We Cheer for the Chiefs?
Fun fact: Past Philly championships have preceded significant market events.
Luckily there have not been many major Philly wins in 100+ years!
Outlook:
The first year of a presidential cycle is typically volatile.
February tends to be the weakest month in post-election years, especially after mid-month.
We’ll continue to monitor conditions and adjust as needed.
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