Equity Overview

Seven of eleven sectors in the S&P 500 rose in February, with utilities the best gainers and technology, consumer discretionary, and financials the worst losers.  Value stocks again outperformed growth.  Volatility was modest, as the S&P 500 moved more than 1% on 4 of 20 trading days. The forward price/earnings ratio for the S&P 500 at month end declined to 21.6 from 22.2, less frothy but still above the 5-year and 10-year averages.

Fourth quarter earnings reported in February were consistent with January results. With 96% of S&P 500 companies reporting, 73% beat consensus earnings expectations which was below the one-year and five-year average beat rates.  However, 73% beat consensus revenue expectations which was above the one-year and five-year beat rates.

Macro Overview

Economic data reported in February was uninspiring.  The Consumer Price Index was benign, but the Producer Price Index came in hotter than expected for the second month in a row.  Unemployment declined modestly and job creation was positive.  But the final revision of full year 2025 employment numbers found that the monthly average number of jobs created was only 15,000—one of the weakest results in decades apart from recession years.

The Commerce Department first estimate of fourth quarter GDP growth was 1.4% annualized, well below consensus expectations of 2.8%.  For the full year 2025, the estimate was 2.2%, a decline from 2.8% in 2024.

One of the biggest macroeconomic developments of the month was legal, not economic. The U.S. Supreme Court struck down the bulk of President Trump’s sweeping global tariffs, delivering a significant ruling with broad implications for trade policy and inflation forecasts.  This will also give rise to an extensive series of additional lawsuits as the plaintiffs seek to recover the tariffs they paid in the face of the government’s announced opposition to refunds.