February 2025 Monthly Review

A Look Back

The above title represents an American action adventure series of movies that started in 2001. The series, which now spans 10 movies, looks at the world of illegal street racing and has become Universal Studios’ most successful franchise. It has grossed more than $7 billion worldwide with a faithful following.

There may be no more accurate description of the first six weeks of the Trump administration here in the United States. To date, there have been over 80 executive orders coming from the second Trump presidency. Many came on Inauguration Day, January 20, and were rescissions of previous executive orders under President Joe Biden. Although several are minor in their scope and impact, others made headlines for their potential economic and societal changes. The newly formed Department of Government Efficiency (DOGE) has garnered quite a bit of attention with the apparent amount and nature of questionable programs, while taking an active role in potential and/or actual job reduction. Recently, several tariffs were announced on Mexico, Canada and China that rattled business owners and investors alike. The historical perspective is that tariffs, in general, tend to be inflationary…at least initially.

 Proponents argue that the playing field is not level, and that some temporary pain will be worth the end goals of fairer trade. We mention all of this because it is real and happening and will most likely have short and longer effects on our economy and markets. We saw it play out in February, as large-cap U.S. stocks were down 1.30%. Small-cap stocks fared much worse, with a -5.35% return. Interestingly, international stocks have reversed a years-long trend of relative underperformance so far this year, delivering positive performance in the month. In the first two months of 2025, Developed International stocks have outperformed the S&P 500 by nearly 6%. This is something that we are monitoring closely to determine if it is more of shorter-term blip, or has some additional legs to run. Finally, with downward pressure on interest rates, core bonds returned a healthy 2.20% for the month, and stand at 2.74% YTD.

A Look Ahead

No matter your political persuasion, it is difficult to deny that President Trump has been delivering on his campaign promises to move swiftly with executive orders. Perhaps some are surprised with the volume, but the pace has been unrelenting. With change comes uncertainty, and as we have written about often in the past, financial markets tend to loathe uncertainty…with a big ole “L”.

However, the first two months have also served as a reminder of the importance of diversity in asset allocations. The aforementioned positive performance from bonds and international stocks have helped to offset recent U.S. declines. And really, large-cap U.S. stocks have led the way for years…is it so unreasonable to expect that there would be a period of underperformance at some point?

There have also been some troubling economic themes recently. The first quarter GDP estimate has gone from a +2.2% reading to -2.8% in a matter of weeks with the news of the tariffs and some disappointing consumer and manufacturing numbers. Just today, President Trump would not rule out the possibility of a recession, as the economy experiences a period of “transition.” Unfortunately, none of this is unusual. We have had a good run over the last two years, with the S&P 500 up nearly 50% on a cumulative basis. Change should not be feared, and we remain committed to our diversified approach that has worked through many market cycles…even the fast and furious kind.