Monthly Market Insights - February 2025
Rate Cuts, Market Dips, and $20 Eggs?—What Investors Need to Know
As we round out February, the markets have been on a rollercoaster ride, with growth stocks hitting new highs before giving up their gains in the last week of the month, despite Nvidia’s positive Q4 earnings. In contrast, bonds experienced a modest rally, with yields declining as investors sought safety amid the volatility in equities.
Treasury Secretary Scott Bessent is making waves with his bold approach to managing the 10-year Treasury, while Elon Musk’s DOGE initiative (that’s Department of Government Efficiency, not Dogecoin) is slashing federal jobs and spending, stirring debate over what role the government should play in the economy.
Meanwhile, inflation is proving to be stickier than expected (unsurprising). Egg prices are expected to soar 40% this year. Yet despite growing calls for rate cuts, the Federal Reserve isn’t budging just yet.
If all of this sounds a bit troubling, don’t worry–-it’s all par for the course in every market cycle. Let’s break down what all this means for your portfolio.
Markets in Review: Volatility Rears Its Head
After a strong January, markets hit a rough patch in late February, suddenly dipping and giving up most of their gains as investors grappled with looming tariffs, AI volatility, and rate-cut timing:
📉 S&P 500: -1.42%, ended the month at 5,954.50
📉 NASDAQ: -3.97%, ended the month at 18,847.28
📉 DOW: -1.58%, ended the month at 43,840.91
Traders are on edge over AI and growth stock valuations, though Nvidia’s positive Q4 earnings report surely assuaged some fears. Bitcoin suffered the steepest drop, nearing an all-time high earlier in February before temporarily dipping below $80,000.
Meanwhile, President Trump’s incoming trade tariffs have led to much hand-wringing and nail-biting. The White House delayed the Canada/Mexico tariff deadline from March 4 to April 2, giving investors more time to speculate (and worry).
Despite this broad market dip, we remain optimistic. Economic fundamentals are still strong, with consumer spending holding up, jobless claims low, and GDP growth positive. This looks more like short-term volatility tied to new administration policies than a major downtrend.
Scott Bessent: Can He Really Control The 10-Year?
Scott Bessent, the first openly gay U.S. Treasury Secretary, wasted no time making headlines after his appointment. His approach to fiscal policy and bond markets is raising eyebrows, especially his belief that he can “manage” the 10-year Treasury yield through a combination of deregulation, deficit reduction, and trade policy adjustments.
His goal? To bring 10-year Treasury yields down naturally over time, making U.S. bonds more attractive to investors while cutting the deficit from 6% of GDP to under 4% by 2028. Critics argue that the markets don’t tend to follow well-laid plans, and trying to micromanage a free-market benchmark like the 10-year could backfire.
Bessent is also a vocal supporter of Musk’s DOGE initiative, which aims to shrink the federal workforce and cut public office footprints and spending, which has Wall Street cheering but government agencies and workers panicking nationwide.
DOGE: Good for Business, Bad for Bureaucracy?
No, Elon Musk isn’t taking over Dogecoin—but his Department of Government Efficiency (DOGE) is taking a hacksaw to federal jobs and budgets. DOGE’s mission is to slash federal leases and lay off thousands of workers in an attempt to “re-privatize” government operations.
In fact, DOGE has already targeted nearly 100 federal office leases nationwide, with 11 in Washington, D.C. accounting for 1.4 million square feet. The Department has also let go an estimated 30,000 federal employees and counting, offering payouts for workers to leave.
While Musk argues that cutting government bloat is necessary, critics warn such aggressive job cuts could hurt consumer spending and disrupt essential services. Ironically, DOGE’s office sector bushwhacking may also be thwarting the overall return-to-office (RTO) movement.
Jamie Dimon: The Government Needs a Makeover
Wall Street tends to listen when Jamie Dimon talks. And in a recent interview, the JPMorgan CEO called the U.S. government “inefficient and in need of work”, supporting Musk’s DOGE while criticizing the lack of long-term central economic planning. His views suggest cautious optimism, but with key risks to watch.
- Tariffs: Dimon thinks Trump’s trade strategy lacks clarity. On the other hand, he’s all for tariffs–-if they help the U.S. in the long run. “If it’s a little inflationary, but it’s good for national security, so be it,” Dimon said on CNBC’s Squawk Box. “I mean, get over it. National security trumps a little bit more inflation.”
- Ukraine Conflict: Dimon supports Trump’s diplomatic efforts, saying a resolution could be a major market catalyst. Of course, that was before the blow-up between Zelensky and Trump in the Oval Office. Now, the timeline for peace is anyone’s guess.
- U.S. Consumers: Despite economic uncertainty, household balance sheets are still strong, and credit conditions are improving—a good sign for consumer discretionary spending.
Eggflation: $20 for a Dozen (Thanks, Powell)
If you thought $8 for jumbo eggs was bad, brace yourself—egg prices are expected to jump 40% this year thanks to a severe bird flu outbreak that wiped out 18 million hens in January, according to the USDA. It’s not just eggs, either—beef, fruit, sugar, and nonalcoholic drinks are all expected to get pricier.
Our recent grocery receipts are friendly reminders that inflation is very real, and very much a problem. Yet despite mounting pressure for more rate cuts this year, the Federal Reserve is holding firm, keeping the federal funds rate target between 4.25% and 4.50%. Powell wants inflation to cool down more before easing up on the central bank’s hawkish policy.
Unfortunately, CPI data came in hotter than expected and inflation expectations rose to their highest level since May 2023. Meanwhile, consumer confidence took its biggest tumble in 3.5 years, reflecting fears over trade policies, job cuts, and economic uncertainty.
Traders are now betting the first rate cut of 2025 will happen in June, followed by a second cut in September. If Trump’s tariffs, Musk’s job cuts, and AI volatility create unexpected shocks, the Fed may have to move faster than expected.
Looking Ahead: What to Watch in March
Despite the recent market dip, the U.S. economy remains resilient. While volatility has crept back in, opportunities still exist for investors who stay ahead of the curve. Here’s what to watch in the month ahead:
- Fed Inflation Report (March 12): If inflation comes in hotter than expected in the next report, rate cuts could be further delayed, putting more pressure on stocks and bonds.
- Tariff Deadline (April 2): Will Trump follow through on tariffs for Mexico and Canada, or will he extend the deadline yet again? The market is watching closely.
Bottom line? Expect some bumps along the way but remember—the biggest gains often come to those who don’t panic when things get choppy.
As always, onward and upward.
Steven and Daniel
STEVEN W. SCHMITT, MBA, CFP®, CPM®, CRPS®, ADPA®
Managing Director, Private Wealth Advisor
CA Insurance # 0G61253
The Schmitt Group of Raymond James
Raymond James & Associates, Inc. // 3CV
61 S. Paramus Road Suite 360, Paramus NJ 07652
Direct 551.497.5531 // Text 201.559.0775 // eFax 201.291.4298
steven.schmitt@raymondjames.com
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