February 2025 Market Recap
Last Month in the Markets: February 2025
What happened in February?
Equity performance during the second month of 2025 was weak. None of the indexes increased, and the NASDAQ lost nearly 4% of its value. Despite February’s negative results, North American equity indexes were mostly up at the end of February, with the NASDAQ being the only exception.
The losses during February reflected the political uncertainty associated with the Trump administration and its penchant for Executive Orders, many of which have generated a legal challenge and consternation in Congress and even among Republicans. One of the most consequential actions could be the introduction of potential import tariffs on Canada, Mexico, and China, despite the USMCA trade treaty signed by Trump in his first term.
Additionally, several economic indicators have shown that inflation progress and employment have not continued their improvements, which have moved markets. In February, the events and announcements included:
1. February 3rd – 7th
Stocks moved downward at the beginning of the week, then regained value after U.S. tariffs on Canadian and Mexican goods were postponed for at least 30 days. Losses pushed the indexes into negative territory, but by only about ½ percent for the week. The downturn at the end of the week can be attributed, in part, to employment reports for January that were released when markets opened on Friday the 7th.
2. February 7th
StatsCan’s Labour Force Survey reported that employment increased by 76,000, which tripled the expectations of analysts. The unemployment rate fell by 0.1% to 6.6%. Wages for permanent employees have risen 3.7% on a year-over-year basis. Wage rate growth is closely watched by the Bank of Canada as a leading inflation indicator.
The U.S. Bureau of Labor Statistics released its Employment Situation Summary showing that nonfarm payroll rose by 143,000 in January. Unlike Canada, this is below the expectation of 169,000 and significantly less than December’s 307,000. The unemployment rate in January lowered slightly to 4.0%. The market has interpreted the less-than-stellar report as not weak enough to push the Federal Reserve back into rate cutting mode.
3. February 12th
U.S. inflation for January was higher than expected. After rising 0.4 percent in December, the Consumer Price Index (CPI) increased 0.5 percent in January. Over the past 12 months the all-items index increased 3.0 percent before seasonal adjustment. About 30 percent of the month’s increase was attributed to the index for shelter. The energy index increased 1.1 percent, and gasoline rose 1.8 percent in January adding to rising inflation. Equity values moved downward after the Bureau of Labor Statistics release. Rising prices suggest that the Federal Reserve will delay interest rate reductions until the second half of 2025.
The Bank of Canada released its summary of deliberations that resulted in a ¼ point (25 basis points) reduction on January 29th. The Bank indicated that a trade conflict with the U.S. would permanently shrink domestic Gross Domestic Product. Approximately 75 percent of Canadian exports are sent to the U.S. and tariffs would reduce U.S. demand for Canadian goods.
4. February 20th
The 4 Nations Face Off concluded successfully for Canada when Connor McDavid scored in overtime against Team USA securing the inaugural championship.
The threat of U.S. tariffs has increased patriotism and consumer efforts to “buy Canadian”. The definitions of “made in Canada” and “Product of Canada” have become important according to a recent article in The Walrus.
5. February 21st
The nascent American administration has introduced changes at an unprecedented rate, and concern by consumers and businesses that the U.S. economy will be negatively affected is increasing. Spending cuts at the federal level and the introduction tariffs are two of the most concerning elements of change. Inflation expectations for consumers are also rising. As a result small company stocks fell the most, and three-quarters of S&P 500 stocks declined.
The Federal Reserve released the minutes from its January 28-29th meeting that held interest rates steady. The committee noted that businesses would attempt to pass input cost increases to consumers arising from tariffs, and that inflation expectations had increased recently. The expectation for rising inflation continues to push the next Fed rate reduction further into the future, likely in the summer or autumn. A delay in rate cuts by the Fed places additional negative pressure on stock values.
6. February 28th
Canadian Gross Domestic Product (GDP) rose 0.2% in December after declining by the same proportion in November. Fourth quarter GDP increased 0.6% after rising 0.5% in the third quarter. Overall household spending rose 1.4% in the fourth quarter and 2.4% in 2024.
The quarterly earnings season concluded for S&P 500 companies with an average earnings gain of 17.8% over the same period one year ago. It was the strongest growth since the fourth quarter of 2021. Financials posted an earnings gain of 56%, the highest of all 11 sectors.
The U.S. Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditures price index (PCE) rose 2.5% in January and core PCE that excludes food and energy increased 2.6%. January’s performance was slight improvement from December’s levels.
What’s ahead for March and beyond?
As we continue to monitor new developments, we will remain vigilant in assessing the impacts of trade policy changes and central bank decisions on the broader economic landscape. Our focus remains on positioning portfolios to navigate uncertainty and capitalize on opportunities as they arise.
