Monthly Market Insights: February 2025

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U.S. Markets

Stocks rallied in January on upbeat Q4 corporate reports and solid economic news that quieted talk of an inflationary comeback.

The Dow Jones Industrial Average led, tacking on 4.7 percent. The Standard & Poor’s 500 stock index picked up 2.7 percent while the Nasdaq Composite added 1.64 percent.¹

“Pressure is a privilege.” -Billie Jean King, former world #1 tennis player who won 39 Grand Slam titles

New Year's Fears

After a tech-led relief rally kicked off the New Year, markets then fell as a round of fresh economic data stoked inflationary fears.²

Investors also reacted to news that most Federal Open Market Committee members seemed concerned that inflation risks had increased, according to the minutes of the Fed’s December meeting. Then, a warmer-than-expected December jobs report caused investors to question whether the Fed would adjust rates in 2025.³

Goldilocks Returns

However, stocks regained their momentum thanks to upbeat Q4 corporate reports and updated economic news that tamped down talk that inflation was a concern. The “Goldilocks” narrative—an economy that’s neither too hot nor too cold—made a comeback.⁴

The Producer Price Index report showed that wholesale prices rose less than expected in December. Then the December Consumer Price Index (CPI) report showed that core inflation (minus volatile energy and food prices) rose less than expected.^{5, 6}

Inauguration Enthusiasm

Following Inauguration Day, stocks resumed their rally as investors believed that a pro-business administration would also be good for financial markets. Markets pushed higher as investors cheered a flurry of new policy announcements and executive orders.^{7, 8}

Honeymoon Rally Slows

However, by the final week of the month, tech stocks dragged the markets lower on news that a Chinese start-up had developed a competitive artificial intelligence (AI) model that performed as well as its Western counterparts at a fraction of the cost. As the month came to a close, investors evaluated whether it was indeed a “black swan” event or just another development in the fast-moving world of AI.⁹

Sector Scorecard

All but one of the S&P 500 Index sectors gained over the month.¹⁰

Healthcare (+6.76 percent) and Financials (+6.50 percent) were neck and neck as the top-performing sectors, while Communication Services (+5.75 percent), Materials (+5.53 percent), and Industrials (+5.00 percent) were not far behind. Consumer Discretionary (+3.49 percent) and Utilities (+2.89 percent) also posted index-beating gains. The three other sectors to end the month in the green were Energy (+2.31 percent), Real Estate (+1.84 percent), and Consumer Staples (+1.63 percent); however, they all lagged the overall return of the S&P 500.¹⁰

The worst-performing sector was Technology (−0.74 percent).¹⁰

What Investors May Be Talking About in February

There is no Federal Open Market Committee (FOMC) meeting scheduled for February, so expect investors to watch economic reports closely as they try to discern the Fed’s thinking on inflation, tariffs, and the labor market.

Investors will also be paying close attention to the White House and its actions on both domestic and international fronts.

Much debate still swirls around the topic of tariffs and their impact on inflation. Market watchers remind investors that markets are a forward-looking mechanism, meaning they may have already priced some of the tariff news. However, in the month ahead, markets may continue to adjust as new policy positions are released.¹¹

World Markets

The MSCI-EAFE Index rose 5.21 percent, led by solid gains throughout Europe.¹²

Germany added 9.16 percent, while France (+7.72 percent), Spain (+6.67 percent), and Italy (+6.69 percent) all posted solid gains. The United Kingdom also had a strong month, picking up 6.13 percent.¹³

Elsewhere, Brazil (+4.87 percent) was a standout among emerging markets. On the Pacific Rim, Korea added 4.91 percent while Australia gained 4.57 percent. Notably, Japan’s Nikkei lagged, falling 0.81 percent.¹⁴

Indicators

Gross Domestic Product (GDP)

The economy grew at an annualized 2.3 percent in Q4, slightly below estimates. For the full year, GDP grew 2.5 percent, compared with 3.2 percent in 2023. Q4 marked the ninth of the past 10 quarters in which year-over-year GDP growth exceeded 2 percent.¹⁵

Employment

Employers added 256,000 jobs in December, topping economists’ expectations of 155,000 jobs. Unemployment ticked down to 4.1 percent, and wage growth moderated, rising just 0.3 percent in December—in line with expectations.¹⁶

Retail Sales

Consumer spending increased 0.4 percent in December, shy of economists' expectations of 0.6 percent. Year over year, retail sales rose 3.9 percent in December, a slight increase from November’s annualized gain.¹⁷

Industrial Production

Industrial output rose 0.9 percent in December, ahead of economists’ expectations. The increase was driven by aircraft and construction supplies manufacturing.¹⁸

Housing

Housing starts rose 15.8 percent in December over the prior month, the highest rate since February. The gain was driven by a 61.5 percent rise in multifamily starts, which includes apartment buildings and condos. A solid rise in single-family housing starts (+3.3 percent) also contributed to December’s advance. For the full year, total starts were down 3.9 percent.¹⁹

Existing homes sales rose 2.2 percent in December to 4.24 million homes. Total sales in 2024 slid 0.7 percent from 2023 to 4.06 million homes—a 30-year low. The median existing home sales price was $404,400, a 6.0 percent increase from a year earlier.^{20, 21}

New home sales rose 3.6 percent in December. Total annual sales in 2024 were 683,000 new homes, a 2.5 percent increase over 2023. The median new home sales price in December was $427,000. There were 494,000 unsold new homes on the market in December (representing 8.5 months of inventory), slightly higher than November and up 10 percent from a year earlier.²²

Consumer Price Index (CPI)

Consumer prices ticked up 0.4 percent in December, driven largely by higher gas prices. Year over year, CPI rose 2.9 percent. However, core CPI, which excludes volatile food and energy prices, was up 3.2 percent year over year—better than economists expected.²³

Durable Goods Orders

Orders of manufactured goods designed to last 3 years or longer fell 2.2 percent in December, mostly due to a decrease in transportation equipment orders.²⁴

The Fed

As widely expected, the Federal Reserve voted to hold firm on interest rates at its January meeting, marking a new wait-and-see phase in monetary policy. The Fed Funds Rate target range remains at 4.25-4.50 percent.²⁵

Fed Chair Jerome Powell had been signaling for some time that the Fed would be moving to a more neutral monetary policy stance, citing the need to balance inflation and a cooling labor market. “From here, it’s a new phase, and we’re going to be cautious about further cuts,” he said. Minutes released from the December FOMC meeting showed that some committee members were concerned about inflation risks.²⁶

The FOMC’s next meeting is scheduled for March 18-19.

By the Numbers: Trends in Valentine's Day Spending

• The estimated amount of Valentine's Day spending last year: $25.8 Billion²⁷
• Average Valentine's Day spending for a couple in a relationship of 2 years or less: $369²⁷
• Average Valentine's Day spending for a relationship between 2 and 5 years: $207²⁷
• Average Valentine's Day spending for a relationship between 5 and 10 years: $187²⁷
• Average Valentine's Day spending for a relationship over 10 years: $118²⁷
• The proportion of Americans who expect to receive a gift this Valentine's Day: 76%²⁷
• The number of dollars that will be spent by the 22% of jewelry gift-givers: $6.4 Billion²⁷
• The number of dollars that will be spent by the 32% of celebrators who will have a nice evening out: $4.9 Billion²⁷
• Share of Americans who will NOT celebrate Valentine's Day: 47%²⁷
• The projected market size of global dating services by 2032: $23.8 Billion²⁷
• The share of marriages that begin online: 17%²⁷
• The increase in online dating activity in the U.S. between February 1 and February 14: 33%²⁷
• The proportion of partnered Americans who say they share unified financial goals: 84%²⁸
• The share of couples who say money is their greatest relationship challenge: 25%²⁹
• The share of Americans who feel comfortable discussing finances with their partner: 87%²⁸