Looking Back To Look Forward
February 2025 was a tough month on Wall Street. The month began with promise: tariff concerns eased, tech stocks rallied, helping the S&P 500 and Nasdaq 100 to hit new highs, economic data was steady—but then sellers showed up and sent stocks lower in the second half of the month.
Erased The Post Election Rally
The major indices and many important areas of the market erased their post election gains and are now lower than where they were in November 2024. All things equal, that’s not a good sign. In fact, the Nasdaq 100 erased all its gains going back to July 2024. The S&P 500 and Dow Jones Industrial Average are trading where they were in Q4 2024. Meanwhile, the damage in small and mid cap stocks are much worse.
The mid-cap S&P 400 erased all its gains since March 2024 and the small cap Russell 2000 hasn’t gone anywhere since January 2021!
Retail Stocks Are Not Acting Well
Walmart gapped down after reporting earnings and that sparked a wave of selling on Wall Street. First, retail stocks fell in sympathy then other stocks fell. The retail ETF ($XRT) is trading in the same spot it was in January 2021! That’s not a good sign either.
Tech Takes a Hit: The AI Trade Is Under Pressure
The AI trade is under pressure as sellers showed up and sent a slew of AI stocks lower in February. Nvidia’s earnings were the big disappointment in February. The institutional AI darling, a cornerstone of Wall Street’s AI/tech rally, posted robust earnings and revenue growth the stock fell over 4.1% which dragged the market lower. The broader “Magnificent Seven” mega cap stocks—already under pressure from a cooling AI hype cycle—fell in February, which put more pressure on the market.
Mixed Econoimc Data
Macroeconomic data also came in to play in February. Inflation was not a major concern (yet) but the Fed’s February FOMC minutes, released mid-month, hinted at a pause in rate cuts, a stance that was more hawkish than initially expected.
By the end of the month, weaker retail sales and consumer demand data suggested a slowdown, complicating the inflation story. Investors are conflicting, some are worried about stagflation and some are hoping for a soft landing.
Trump’s Tariffs: Trade War Redux
Policy shocks added another layer of volatility. President Donald Trump’s mid-February announcement of new tariffs on lumber, forest products, and other items sparked fresh concerns about a new trade war. Investors are concerned that a trade war could distrupt the supply chain and spark retaliatory risks from Canada, Mexico, the EU, and China. The tariff rhetoric, an extension of Trump’s pro-growth agenda, clashed with its inflationary potential, leaving Wall Street divided on its net impact.
Looking Forward
We saw a lot of damage in February on Wall Street. Right now a defensive stance is warranted until the bulls regain control and repair some of the technical damage. Looking forward, Wall Street’s focus shifts to a trifecta of news: Economic, Political, and Earnings news. Next week we have the always fun jobs report and we’ll see what the latest will be with respect to Trump’s next policy moves. The sellers have the slight upper hand as the major indices test import long term areas of support. If support holds that will be bullish. If not, we can easily have another leg down.
Disclaimer: I have a position in Nvidia and it has been featured several times in my FindLeadingStocks.com stock market newsletter.