February of 2025 was a rocky month, to say the least. Initial optimism was tempered by increasing caution as new economic data emerged, geopolitical situations evolved, and trade policies remained a focal point. Investors navigated ongoing inflation concerns and a noticeable shift in risk appetite. Notably, the long-standing leadership of the US equity market began to show signs of change, and opportunities in international markets alongside other specific asset classes gained increased attention. In the real estate sector, mortgage rates eased for the sixth consecutive week, providing some relief to buyers, while home sales prices continued to rise modestly, and listing prices remained flat or declined.
Key Highlights: Navigating February of 2025
• Economic Overview: February was marked by rising inflation concerns, with CPI and PCE inflation measures accelerating beyond expectations. Investor sentiment weakened as consumer confidence dropped to an eight-month low, and US tariff policies added to market volatility, reinforcing fears of prolonged inflationary pressures.
• Equities: US equities declined, with the S&P 500 down 1.3% and technology stocks experiencing their worst month since 2022. Meanwhile, European markets outperformed, led by Spain and Italy, signaling a shift in global equity leadership and increased investor interest in international diversification.
• Fixed Income: A flight to safety benefited US Treasuries, with the 10-year yield dropping 33bps to 4.21%. Investment-grade bonds outperformed high-yield debt, while overall bond indices continued to rise amid declining market yields and increased risk aversion.
• Real Estate: Mortgage rates eased for the sixth consecutive week, providing some relief to buyers, while home prices rose modestly. However, flat or declining listing prices and slowing inventory growth suggest mixed market conditions, with stronger demand expected by late spring.
Economic Overview
Inflationary pressures were a central theme throughout February. Data indicated a significant acceleration in the US CPI for January, marking its largest monthly increase in over a year. The PCE index, a closely watched inflation measure, also showed a substantial rise, reaching its fastest pace since early 2024 and keeping inflation above the targeted 2.5%.1 These higher-than-anticipated inflation figures led investors to expect a considerable increase in inflation expectations for the remainder of the year. Additionally, a decline in a key consumer confidence indicator to an 8-month low suggested a potential softening in consumer sentiment.1
Adding to these inflationary pressures was the prominent theme of US tariffs throughout February. The month began with the threat of imminent tariffs on Canada and Mexico (25%) and China (10%), which initially led to a strong risk-off move in the market. Although the tariffs on Canada and Mexico were temporarily extended, the 10% tariffs on China did come into force. Furthermore, there was an announcement of reciprocal tariffs and a proposal for 25% tariffs on all steel and aluminum imports. Towards the end of the month, the confirmation that tariffs on Canada and Mexico would proceed in early March led to a fresh sell-off. The threat of these higher tariffs interacted with growing fears of inflation, leading investors to price in meaningfully higher inflation for the coming year, partly due to the upside CPI surprise occurring alongside the ongoing tariff concerns. The implementation and threat of tariffs were a significant factor contributing to the volatility and broader market moves, along with the increased inflation expectations observed in February.
Equities
February saw varied performance across global equity markets. While U.S. stocks declined, with the S&P 500 down 1.3%, international equities demonstrated relative strength, marking a shift in regional market leadership.1 This was largely due to a fall in technology stocks, particularly the “Magnificent 7”, which experienced their worst monthly performance since late 2022, falling by 8.7%.1 The technology-heavy Nasdaq Composite also showed weaker returns. Furthermore, small and mid-cap US companies underperformed their large-cap counterparts. Notably, as a whole, US stocks underperformed their global peers in the initial months of 2025. European equities, in contrast, maintained strong performance, with the STOXX 600 rising by 3.4%.1 Italy’s FTSE MIB (+6.0%) and Spain’s IBEX 35 (+7.9%) demonstrated even stronger gains. German equities, as reflected by the DAX (+3.8%), performed similarly to other European markets, while mid-cap German stocks (MDAX) outperformed with a rise of 5.9%.1 The robust performance of European equities was partly attributed to the start of negotiations between the US and Russia over Ukraine and the prospect of higher defense spending.2 Across global equities, a significant shift in geographic leadership was evident, with international stocks generally outperforming US stocks. This shift reflected a reassessment of risk tolerances and expectations for corporate profit growth. The market’s volatility in February underscores the importance of constructing well-diversified portfolios, emphasizing strategic risk management to align with investors’ long-term financial objectives.
Fixed Income
Investor caution in February led to a shift toward safer assets, boosting demand for government bonds. US Treasury securities had a strong performance due to heightened risk aversion towards the end of the month, resulting in a significant decrease in the 10-year Treasury yield [-33bps to 4.21%]. In Europe, 10-year German bond yields also declined [-5bps to 2.41%].1 The Bloomberg U.S. Aggregate Bond index saw a return of 2.2% in February, while the Bloomberg U.S. Corp. High Yield index was up only 0.7% in February.1 Overall, US bond indices continued their upward trajectory, supported by lower market yields, and higher-quality investment-grade bonds outperformed their riskier, high-yield counterparts.
Real Estate
The housing market is showing mixed signals as we move into 2025. While mortgage rates have eased for the sixth consecutive week, providing some relief to buyers, home sales prices continue to rise modestly, with gains between 4% and 5% by the end of 2024.3 However, listing prices have remained flat or declined, and there’s been an uptick in price reductions among active listings. Inventory growth is slowing, with fewer new listings compared to January, indicating waning seller enthusiasm. Regional trends show strength in the Northeast and Midwest, while areas like Tampa are seeing price declines.3 As the market adjusts to the late 2024 spike in mortgage rates, there is a more noticeable pickup in home sales expected by late spring or early summer.
Closing Remarks
Looking ahead, the market’s sensitivity to economic data releases and policy decisions remains elevated. The potential for ongoing strength in international equities and the underperformance of US and technology funds are noteworthy developments. The focus for investors should remain on time in the market, not timing the market, as well as a focus on geographical and asset class diversification for long-term growth.
Reach out to our team today if you want to learn more about how we can walk with you to create a plan for your finances that aligns your investments and savings with your unique situation and goals.
1 Allen, Henry and Jim Reid. “February 2025 Performance Review.” Deutsche Bank Research, March 3, 2025.
2 Goldman Sachs BRIEFINGS, February 28, 2025.
3 “Video: Economic and Housing Market Update – February 28, 2025.” Realtor.com, February 28, 2025.
IMPORTANT DISCLOSURE: This article is produced by Ceva Capital LLC dba Ceva Advisors. The information contained in this report is informational and intended solely to provide educational content to our clients and other readers that we find relevant and interesting. Opinions expressed are just that, and are current only as of the data of publication Nothing in this document should be construed as investment advice; we provide advice on an individualized basis only after understanding your circumstances and needs. The information presented in this newsletter is based on reports from Deutsche Bank and Bloomberg’s ‘5 Things You Need to Know to Start Your Day’ series. Data provided comes from sources we believe are reliable, but accuracy is not guaranteed. Discussion of sectors and the performance of region-specific equities and bonds generally refers to market indices. We use the S&P 500 to represent US large-cap; the Willshire Small Cap to represent US small-cap; the MSCI ACWI ex US to represent international equities; the US 10-year Treasury Yield to represent US Treasuries; the ICE BofA European Government Bond Index to represent European bonds; the ICE BofA US Corporate Index Effective Yield to represent investment-grade bonds; the ICE BofA US High Yield Index Effective Yield to represent high-yield bonds. Indices are unmanaged, are not subject to investment management fees or transaction costs, and it is not possible to invest in an index. Index performance can provide general information about how a particular region or investment has performed, but does not provide information about the performance of Ceva’s client portfolios. Actual client performance may differ materially from the index performance discussed. Past performance is not a guarantee of future results. Financial planning is a tool that can help clients consider different current and future scenarios and construct portfolios designed to meet specific goals and address specific risks. Financial planning does not guarantee a positive outcome or prevent loss. It’s important to revisit financial plans and the underlying assumptions of those plans regularly, and to make adjustments as needed to respond to changing circumstances.
