"Volatility is the price of admission. The prize inside are superior long-term returns. You have to pay the price to get the returns.” - Morgan House

Last month brought some warm inflation readings and continuing tariff talks, which contributed to potential economic uncertainty. That makes the start of the new month a good time to share an overview of what happened and what’s ahead. Read on for a monthly summary of what you should know.

Major U.S. Stock Indexes

After a strong January to start the year, major U.S. equity indexes traded lower in February. Here’s how major U.S. stock indexes fared:

• The S&P 500 declined by 1.42%.
• The Nasdaq 100 fell by 2.76%.
• The Dow Jones Industrial Average decreased by 1.58%.

Tough Tariff Talk

The U.S. administration cited trade imbalances and national security concerns, including efforts to curb the flow of fentanyl and its precursor chemicals. The ongoing tariff talks have been a daily topic of discussion. Here is where we are at the start of the month:

Responses from Canada, Mexico, and China

• Canada: Immediate 25% tariffs on $30 billion worth of U.S. goods, with plans to extend to $125 billion if needed.
• Mexico: Details pending, but a mix of tariff and non-tariff measures is originally expected by March 9th but now could be delayed until April 2.
• China: Retaliatory tariffs (10%-15%) on U.S. agricultural products, effective March 10th.

Impact on Consumers

• Higher Prices: Electronics, vehicles, appliances, and groceries could see increases.
• Market Volatility: Trade tensions may affect tech, automotive, and agriculture sectors.
• Supply Chain Disruptions: Potential delays and increased costs for global suppliers

CPI and PPI Show Inflation Warmth

January inflation metrics released in February ran warm overall but ended on a positive note:

• The January Consumer Price Index (CPI) showed a monthly increase of 0.5%, exceeding expectations of 0.3%, resulting in a year-over-year inflation rate of 3.0%, up from 2.9% in December.
• Initially, markets reacted negatively to the data suggesting the Federal Reserve may maintain a neutral stance longer, but stock indexes recovered by the end of the trading week of the data release.
• The January Producer Price Index (PPI) rose 0.4% for the month and 3.5% year-over-year, surpassing estimates of 0.3% and 3.2% — a hotter than expected reading. 
• Positive factors in the PPI data release were seen as likely to positively influence the then-upcoming data release of the Core Personal Consumption Expenditures (PCE) index.

Core PCE Offers Positive Data

• Markets needed some soothing or something to grab onto on the last trading day of the month, and they got just that in the form of Core PCE. Data showed a 0.3% monthly rise and a 2.6% annual rise — both in line with expectations and a step down from the previous month's upwardly revised reading of 2.9%.
• This most recent piece of inflation data (and the Fed’s favorite measure) was the lowest reading in seven months. This data was a solid way to finish the month.

Federal Reserve (Fed) Outlook

• There was no Fed meeting in February, but we did get the minutes from the January meeting. Minutes showed concerns over the potential impacts of tariffs on inflation. As a result, the tone was one of rate cuts being on hold.
• As of the last trading day of February, Fed Funds futures markets are pricing a 93.0% probability that the Fed will leave rates unchanged at the March meeting. 
• June Fed meeting probabilities show only an 18.4% chance of an unchanged decision by the Fed, with June currently being talked about as the month for rate cuts.

Labor Market

• The nonfarm payrolls report for January shows a disappointing increase of only 143,000 jobs, below the Dow Jones forecast of 169,000. This slow growth was partly due to California wildfires and employers' uncertainty about the policies of the new administration.
• On the bright side, December and November payroll figures were revised upward.
• While the headline jobs number fell short, the underlying data remains strong. In addition, the unemployment rate has dropped to 4.0%, and hourly wages increased.

Consumer Health & Mood

• January retail sales data showed some post-holiday hangovers, with sales declining by 0.9% for the month versus Dow Jones estimates for a 0.2% decline. Severe weather may have been partially responsible for the weak number.
• University of Michigan’s consumer sentiment data dropped to a 15-month low amid tariff uncertainty. Consumer confidence data also fell to its lowest reading since 2021.

Spring Ahead

The financial markets absorbed the weight of nearly constant tariff talk and the uncertainties that accompanied it well for most of February. However, volatility presented itself as the month progressed to a close. 

The winter of tariff uncertainty could persist for a while longer — much like how Punxsutawney Phil saw his shadow. It is always darkest before dawn, and spring is right around the corner! We will see how it all plays out while remaining focused on the core principles of long-term investing.

As always, if you would like to discuss the current market outlook and explore investment strategies based on your objectives or market developments, please contact us.

Onward and Upward!

IMPORTANT DISCLOSURES: Clare Market Investments, LLC is a Registered Investment Advisor. This material is for informational purposes only. It is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a recommendation to buy a security. The information is derived from sources believed to be reliable and accurate as of the date of this report, but Clare Market has not audited this information to validate accuracy. Further, information may be at a point in time and subject to change. This summary is based exclusively on an analysis of general market conditions and does not speak to the suitability of any specific proposed securities transaction or investment strategy. Judgement or recommendations found in this report may differ materially from what may be presented in a long-term investment plan and are subject to change at any time. This report’s authors will not advise you as to any changes in figures or views found in this report. Investors should consult with their investment advisor to determine the appropriate investment strategy and investment vehicle. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. Except for the historical information contained in this report, certain matters are forward-looking statements or projections that are dependent upon risks and uncertainties, including but not limited to such factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle. See claremarket.com for additional information and disclosures. © 2025 Clare Market Investments, LLC. All Rights Reserved.