February Market Commentary

From Optimism to Uncertainty

What began as market enthusiasm for a pro-business environment under the Trump administration—fueled by expectations of corporate tax stability, deregulation, and targeted rate cuts—has given way to growing uncertainty weighing on the markets. Investors, business leaders, and consumers are grappling with the impact of tariffs, government downsizing, and geopolitical tensions. As a result, after a strong start in January, Wall Street saw a sharp downturn in February, with losses deepening into early March.

In recent commentaries, we have written about tariffs and the importance of addressing the major economic challenges of the federal deficit and national debt. The case is also strong that a large and persistent trade deficit contributes to national debt, weakens domestic industries, and leads to job losses. Additionally, prolonged trade deficits result in wealth transfer to exporting countries, increasing foreign ownership of U.S. assets, including businesses, real estate, and government debt. It is rational to safeguard U.S. economic stability by addressing these challenges through policies that promote exports, strengthen domestic manufacturing, and ensure fair trade practices.

However, the sheer volume, pace, and dynamism of the administration’s pronouncements and policies on tariffs, government spending reductions, and reshaping global economic relations have created a complex landscape for investors, business leaders, and consumers to navigate.

The tariff policy’s dynamism and uncertainty understandably have a deleterious real-world impact. To illustrate, a CEO of a U.S. manufacturing company with operations in Canada and Mexico explains that ongoing uncertainty surrounding tariffs has stalled capital investment and hiring decisions for manufacturers and their customers. As a result, new orders and business development have slowed significantly—a pattern likely emerging across the broader economy.

Two recent CNBC interviews offer insights into these challenges and the broader economic landscape. While they do not eliminate uncertainty, they provide valuable context to help explain current conditions.

The first is a 6-minute interview with Barry Knapp of Ironsides Macroeconomics, a market strategist we have followed for years. Knapp discusses the market downturn, forecasting a 10-12% decline and highlighting the difficult transition from government-driven economic growth to private-sector investment. He attributes the recent rapid slowdown in business capital investment to policy uncertainty. Notably, his outlook diverges from market consensus—he expects the Federal Reserve to cut interest rates by a full percentage point as the economy recalibrates in 2025.

The second interview is with U.S. Treasury Secretary Scott Bessent, arguably the most significant economic appointment made by the President. The Treasury Secretary is critical in overseeing economic policy, managing federal finances, advising the president, regulating banks, enforcing tax laws, issuing debt, and combating financial crimes. In this wide-ranging 42-minute CNBC interview, Bessent pleads the administration’s case and addresses key questions, he provides the underpinning reasons for policies, the extent of economic challenges ahead, and whether the long-term benefits will outweigh the disruption and pain in the meantime.

These interviews may not reduce your uncertainty, but they offer essential perspectives on today’s economic environment’s risks, opportunities, and potential outcomes.

A Changing of the Guard?

In 2024, the S&P 500 delivered an impressive total return of 25.0%, with the Mag 7 stocks contributing a staggering 53.7% of those gains. This concentrated leadership underscored the market’s reliance on a handful of mega-cap technology and AI-driven companies, fueling exceptional returns and amplifying risks. Investors benefited from the surge in these high-growth stocks, yet their dominance created potential vulnerabilities, including stretched valuations and heightened exposure to sector-specific downturns.

Fast forward to thus far in 2025, and the market narrative has flipped. The Mag 7 was down 5.75% through the end of February 2025, leading a retreat from last year’s highs, while the other 493 stocks in the S&P 500 rose 5.12% during the same period. This reversal suggests a broadening of market leadership, with gains spreading to more diverse companies and with lower valuations outside the technology and AI sector. The shift reflects changing investor sentiment, possibly driven by concerns over stretched valuations, profit-taking, or macroeconomic factors affecting tech-heavy stocks more acutely than the rest of the market.

While last year’s rally rewarded those who rode the Mag 7 wave, 2025 is proving to be a different story thus far—one where diversification is playing a more prominent role in generating returns. This evolving market dynamic raises critical questions about the sustainability of past leadership and whether a broader rotation into other sectors will continue throughout the year.

Graph A 2024 returns for the Mag 7, the other 493 (S&P 500 – Mag 7) and the SPY ETF (S&P 500 Index)

Jan. 1, 2025 – Feb. 28, 2025 returns for the Mag 7, the other 493 (S&P 500-Mag 7) & the SPY ETF (S&P 500 Index)

We’ve weathered economic storms before—navigating crises, market upheavals, and shifting policies. Yet today, we find ourselves on a journey, perhaps not of our choosing, led by policymakers who chart a course
paved with tariffs, tax reform, deregulation, and the shrinking of government. Some see this as the necessary path to long-term prosperity; others view it with skepticism, questioning the wisdom of those at the helm. But regardless of belief or doubt, all must now grapple with the uncertainty of what lies ahead.

For those who trust the vision, this transition is necessary—if turbulent. For those who doubt, it is a precarious gamble with unpredictable consequences. Either way, the road ahead is the same for all. The stakes are high, the risks undeniable, and the destination uncertain. The only choice is how to navigate the path forward.

We believe that investment diversification is beneficial in times like these and that the best thing for investors to do right now is to stay disciplined, be patient, and keep their eyes on the long game. Markets will always ebb and flow, and policies will evolve, but those who stay focused on strong fundamentals and long-term goals—rather than the daily noise—are the ones who will thrive in the end!

Your portfolio reports are available in your eMoney vault for easy access. Don’t assume a short-term drawdown of your financial accounts will knock your retirement plan off track. Instead, let us revisit your
financial plan and review your portfolio with you.

We are reaching out to clients to schedule reviews. If you’re concerned about the current volatility, please schedule a time to discuss your concerns.

Thank you for allowing us to be part of your journey and for placing your trust in us. We look forward to connecting with you soon!

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1.         The S&P 500 and Dow (DJIA) are unmanaged groups of securities considered to be representative of the stock market in general.