February turned out to be a bit of a downer for the stock market, as it wrapped up the month on a lower note. Investors found themselves increasingly jittery thanks to some unclear policy moves from the Trump administration and a less-than-optimistic consumer sentiment, both of which cast shadows over economic prospects.
Following President Trump’s election victory, stocks got a boost, riding high on hopes for friendlier regulations and tax breaks, which were expected to spur growth. However, that excitement has tapered off lately, fuelled by growing worries over inflation tied to potential new tariffs. That concern, coupled with a slump in technology stocks this week, dragged down the broader market.
The S&P 500 did manage a bounce late on Friday, closing the day with a 1.6% gain. However, that wasn’t enough to counteract a second straight week of losses. From hitting a record high on February 19, the index slid downwards by roughly 1.4% for the month.
This retreat largely stems from renewed fears over the inflationary repercussions of broad tariffs imposed by Mr. Trump on China. Talks are also circulating about extending these tariffs to Canada and Mexico next week. Not too long ago, around late 2024, there was chatter about the Federal Reserve cutting interest rates multiple times in the year, which could have given stocks and the economy a lift. But the narrative shifted quickly due to unease about inflation’s staying power. With interest rates projected to stay elevated, apprehension is extending to the economy’s wider landscape.
Surveys tracking economic conditions have underscored a stark drop in consumer confidence. This downturn is partly due to gloomy employment forecasts, along with fears that prices might start climbing again, which only adds to the cautious stance among investors.
Steve Sosnick, the chief strategist at Interactive Brokers, puts it quite aptly: “The market showed great enthusiasm around the election, largely based on expectations of favorable tax policies, lighter regulations, and just general excitement. The issue, however, is that those expectations probably ran a little ahead of what was realistic.”
In related developments, concerns about the economic landscape have rippled into other areas. For instance, the 10-year Treasury yield dipped to approximately 4.22% on Friday, marking its lowest point since December. Oil prices took a hit as well, with Brent crude seeing more than a 1% drop to just over $73 a barrel, nearing its lowest in recent history.
The thrill around artificial intelligence had previously driven surges in tech stocks over the last year, but perhaps investor expectations overshot the mark. This week, Nvidia released quarterly results that were above analysts’ predictions, yet still managed to leave investors craving more. Consequently, Nvidia’s stock took a more than 7% hit this week, pulling the tech-heavy Nasdaq down with it.
Tesla also contributed to the pressure on major indexes, with its stock tumbling nearly 30% in February. Just this week alone, Tesla shares slid an additional 13%, largely due to a sharp decline in their European sales. More broadly, Elon Musk’s company reported a notable drop in 2024 profits last month, and Musk’s involvement with the Trump administration has sparked uncertainty over his priorities.
Over February, the Nasdaq saw a descent of about 2.8% – its steepest monthly decline since last April.
Cryptocurrency struggles are further clouding stock performances. Bitcoin, which hit a notable $100,000 back in December, has plummeted more than 20% from that high last month, trading closer to $84,000 now. The decline continues despite the Trump administration’s more lenient regulatory stance on cryptocurrencies. As Bitcoin falls, so do the stocks of crypto-associated companies such as Coinbase and MicroStrategy.
Despite this week’s downturn, some analysts maintain a positive outlook for the long haul, pointing out that the S&P 500 still hovers near historic highs. Wall Street’s mood, as chief strategist Steve Sosnick explains, “can change on a dime.”
As for how much longer Trump’s policies might impact the stock market remains uncertain. David Lefkowitz, who leads equity strategies for UBS Global Wealth Management in the Americas, suggests, “There’s definitely a risk of additional policy-driven dips in the near term, but ultimately, we don’t believe the Trump administration will implement measures capable of causing lasting damage to economic growth or inflation.”
