February saw a reversal of the post-election “Trump Trade”, with US stocks falling while international stocks moved higher as US investors grew cautious around geopolitical uncertainty. The S&P 500 fell -1.3% on the month, though the blue chip index is still up +1.4% for the year.
Smaller company stocks fell -5% in February, with the Russell 2000 index now off double digits from its November highs.
International stocks gained +1.4% per the MSCI ACWI ex-US index, bringing their 2025 return to +5.4%, though the index still sits below its highs reached last year.
Within fixed income, the Bloomberg Aggregate Bond index jumped +2% as investors piled into bonds in the face of equity uncertainty. The index is up +2.7% so far this year.
Commodity markets continued their strong start to the year, adding +0.8% in February for a +4.8% return through the first two months.
Our proprietary Three Dials readings were unchanged in February, which we snapshot below:
- Market Sentiment and Momentum: (Positive ➕)
Pessimism amongst individual investors reached its highest point since the bear market of 2022, which is historically a contrarian indicator and one that institutional investors typically use to “buy the dip”.
However, if headlines don’t improve, markets may still have room to fall. For now, the technical setup remains strong, and thus our Momentum Dial holds firm in a Positive position.
- Economic Fundamentals: (Negative ❌)
February’s manufacturing data encapsulates the post-election reversal, where both New Orders and Employment figures moved back into contractionary territory after showing signs of life coming into the year.
With the yield curve re-inverting on lower long-term yields, growth concerns are again in the spotlight, and our Fundamental Dial remains Negative.
- Valuation: (Negative ❌)
February’s selloff was concentrated in the US growth sector, led by the Magnificent 7 stocks, which at their peak approached the entire GDP of China. These lofty valuations could leave markets vulnerable if headwinds remain, and as such our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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