Nicolet Wealth Management Monthly Newsletter
Tariffs Weigh on Stocks
Uncertainty forced investors to reassess the richness of the stock market, especially the growth and technology segments. The S&P 500 Growth Index declined -2.9% in February, while the S&P 500 Value Index advanced 0.43%. Overall, the S&P 500 Index fell -1.3%, given its weighting being heavily influenced by the largest technology stocks found in the S&P 500 Growth Index. At a sector level, consumer discretionary stocks declined the most (-9.4%), followed by communication services (-6.3%), while sectors with the highest dividend yield performed the best (Real Estate rose +4.2%). When uncertainty rises, investors seek sectors with the highest quality dividend yields for safety.
Inflation Reaccelerating?
Rising prices are grabbing the headlines after the Consumer Price Index (CPI) advanced +0.5% MoM in January, compared with +0.4% the prior month and the core CPI, which excludes food and energy, increased +0.4%. On a year-over-year basis, headline CPI accelerated to 3% and the core CPI rose to 3.3%. Core services inflation accelerated, as transportation costs drove most of the increase, especially car insurance, motor-vehicle fees, and airfares. On the housing front, shelter inflation was higher than the previous month on rising hotel prices and rental costs. This consumer prices report had many noisy signals, with costs most important to households rising rapidly, while some of the past data in 2024 were revised lower. Ultimately, consecutive inflation prints like January will be necessary before the Federal Reserve becomes too concerned.
International Relief Rally
Since mid-January, international stocks, as represented by the MSCI EAFE index, pulled away from domestic stocks, as represented by the S&P 500 index. The MSCI EAFE index has returned 7.3% since the beginning of the year, while the S&P 500 index has returned 1.4%. One of the main drivers of this performance has been a weaker dollar. The dollar has weakened by -0.8% in 2025 on uncertainty stemming from trade policy. Dollar weakness is likely necessary for continued international equity outperformance.
Mid-Cycle Job Recovery
The U.S. economy added 143,000 jobs in January 2025, but prior month revisions shaped the labor market picture in 2024. Annual government data revisions expressed that job gains were softer last year; however, the last two months of data showed an additional 100,000 jobs were added for an average of 284,000 monthly job gains. The labor market cooled in response to uncertainty surrounding the election, but reaccelerated once there was clarity on the path forward. Most importantly for workers, wage growth accelerated by 0.5% in January and 4.1% from a year ago. Looking forward, there is little indication that the labor market should cool significantly, as corporate profitability remains robust.
EMPLOYMENT GROWTH ACCELERATING
After exhibiting some weakness in 2024, payrolls are a positive contributor to growth
Interest Rates Fall Sharply
Bond yields declined to reflect weaker economic sentiment emanating from tariff uncertainty, weaker consumer confidence, and retail sales. The 10-year Treasury yield declined 0.33% in February to a level of 4.21% and the 2-year Treasury yield dropped by 0.20% to 3.99%. The 2-year Treasury yield better represents the expectation of the Federal Reserve target policy rate path. Given rising uncertainty, the market’s expectation for Federal Reserve rate cuts followed the path of the 2-year Treasury yield, with one more 0.25% cut expected in 2025. At the end of January, two 0.25% rate cuts were expected in 2025, which turned to three 0.25% rate cuts at the end of February.
Although we believe it to be reliable as of the publication date and have sought to take reasonable care in its preparation, all information provided is FOR INFORMATIONAL PURPOSES ONLY and we make no representations or warranties regarding its accuracy, reliability, or completeness and assume no duty to make any updates in the event of future changes. Past performance may not be indicative of future market results. Any examples used (including specific securities) are generic and meant for illustration purposes only and are not, and should not be interpreted as, offers to buy or sell such securities. To the extent indices are referenced, please note that you are not able to invest directly in an index.
Nicolet Wealth Management is a brand name that refers to Nicolet National Bank and certain of its departments and affiliates that provide investment advisory, trust, retirement plan level services, and insurance services. Investment advisory services offered through Nicolet Advisory Services, LLC (dba Nicolet Wealth Management), a registered investment advisor.
All investments are subject to risks, including possible loss of principal, and are: NOT FDIC INSURED; NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY; AND NEITHER DEPOSITS OR OTHER OBLIGATIONS OF, NOR GUARANTEED BY, Nicolet National Bank or any of its affiliates. Neither Nicolet Advisory Services nor its affiliates offer tax or legal advice. You should consult with your legal and tax professionals before making investment decisions.
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