MONTH IN REVIEW
Following a gain of 2.78% for January (total return), SPX (the S&P 500) returned -1.30% (total return) in February. After returning 2.25% (total return) in January, NDX (the Nasdaq-100) returned -2.69% (total return) in February. The Russell 2000 returned -5.35% in February after a gain of 2.62% in January. SPX closed under its 50-day moving average to close out February, which we will illustrate later in this note, as tariff-talk and weak economic data woes put pressure on the market. Another notable datapoint from February was the release of January’s inflation data: Core CPI rose 0.4% M/M, exceeding the 0.3% consensus. PPI rose 0.4% M/M, exceeding the 0.3% consensus. PCE rose 0.3% M/M, and Core PCE also rose by 0.3% M/M. Both PCE and Core PCE matched the consensus.
Fixed income markets rallied during the month of February. Both 10 & 30-year Treasury Bond yields moved lower by end of the month, and both finished the month of February near their 200-day moving averages for the first time in several months. The 10-yr closed at 4.21% to end the month, below the important 4.40% technical level. The 30-year Treasury yield ended the month at roughly 4.49%. Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so. Additionally, the 2/10 Treasury yield spread remained positive in February after its record-long inversion came to an end in the second half of 2024.
There was no Fed meeting in February. The next Fed meeting will take place on 3/18-3/19. Looking back – after the FOMC cut rates by an additional 25bps in December, the market got no cut in January. Looking forward, and as of the end of February, the market is pricing in a total of 50bps of cuts for the year (two cuts). The Fed continues to target 2% inflation as its goal and incoming inflation reports will likely continue to drive the dot plot.
According to FactSet, the trailing 12-month P/E ratio for SPX is 26.1, which is above the 5-year average (24.3), and above the 10-year average (22.1). The forward 12-month P/E ratio for SPX is 21.2, which is above the 5-year average (19.8), and above the 10-year average (18.3). Additionally, per FactSet, SPX is reporting Y/Y revenue growth of 5.3% for Q4 2024, which is above the estimate of 4.6% on December 31. Finally, per FactSet, SPX is reporting Y/Y earnings growth of 18.2% for Q4 2024, which is above the estimate of 11.7% on December 31.
Within commodities and currencies: WTI Crude Oil fell in February by roughly -3.50%. Gold rose by roughly 2% in February. Finally, the USD/DXY closed out the month near 107.50, which was slightly lower M/M.
VOLATILITY UPDATE
After closing out January at 16.43, the VIX Index rose during February and closed out the month at 19.63. The 12-month high of the VIX Index was registered on 8/5/24 at 65.73. In 2022, the VIX averaged over 25. In 2023, the VIX averaged near 17. And in 2024, the VIX averaged near 15.50.
The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities. It is thought of as “The VIX Index of the Bond Market.“ After closing out January around 92, the MOVE Index rose in February alongside more volatile yields and closed out the month near 104.50. Traders will continue to monitor this index to gauge potential future bond and equity volatility. Equities tend to favor a subdued MOVE Index.
Notable Charts
Source: Bloomberg, Morningstar Direct 2025. Past performance is not indicative of future results.
LOOKING AHEAD
Among other factors, the market will be adjusting to and watching the new administration, tariffs, inflation, earnings, yields, geopolitical risks, and the Fed outlook. On the inflation front, February’s CPI will be released on 3/12, and PPI will be released on 3/13. Finally, the next FOMC meeting will take place on 3/18-3/19.
