MARKET UPDATE
February has been a month of worry for investors as tariff concerns and fears over a slowdown in growth have caused consumer confidence levels to drop by the most since 2021. With the market increasingly worried about growth, mega caps have experienced a correction from their peak, instigating a rally in US Treasuries. The S&P 500 has ended the month down 1.30%, helped by a late afternoon rally on the 28th. International markets outperformed domestic markets overall, with the MSCI EAFE and Emerging Markets both finishing the month strong, rising 2.75% and 2.94% respectively.
As for Fixed Income, bond markets have fared well as the Bloomberg US Aggregate Index rose 2.20% bolstered by a decrease in yields across most of the yield curve. The long end of the yield curve saw the steepest declines, with the 10-year yield dropping 33 basis points. Despite inflation remaining above the Federal Reserve’s 2% target, there is little incentive for the Fed to cut rates. If policymakers maintain a restrictive stance, the impact of fiscal policy on long-term yields may be uncertain, reinforcing the bond market’s trend of elevated long-term rates.
Headline consumer confidence declined to 98.3 from the previously revised figure of 105.3, where surveys were expecting a slight decline to 102.5 instead. This 7-point decline is the largest drop in the index since August 2021 and is the third consecutive month of declines seen from the index. From the recent market turbulence seen through the month, consumers are showing uncertainty and may already be weary of the new administration’s proposed policies and their potential impacts on future inflation, jobs and the economic outlook.
ADVISORS’ PERSPECTIVE
As of March 2025, the economic landscape is heavily shaped by ongoing challenges, particularly with tariffs, a cooling labor market, and an inverted yield curve. Under the Trump administration’s second term, trade policies continue to be a central issue, with tariffs on China and other key trading partners still in place. While there has been some attempt to recalibrate these policies, trade tensions remain high, particularly in sectors like technology and manufacturing, creating uncertainty in the global supply chain.
On the labor front, the U.S. job market is showing signs of cooling. The pace of hiring has slowed compared to previous years, and job numbers are starting to lag behind expectations. While unemployment remains low, there are concerns about wage growth and a potential mismatch between job openings and available skilled workers. The labor market, once a bright spot in the recovery, now faces challenges that could dampen consumer spending and overall economic growth.
The inverted yield curve continues to signal caution in the bond market, with long-term interest rates remaining below short-term rates. This inversion typically suggests that investors are anticipating a slowdown, if not a recession, in the near future. The bond market’s bearish sentiment has added to the overall sense of uncertainty in the economy, as many investors brace for a potential downturn.
Consumer confidence is relatively stable but remains subdued compared to previous highs, as concerns over inflation and rising costs continue to affect household spending. Despite these concerns, the overall sentiment hasn't dramatically shifted, as many consumers remain cautious but still active in the market.
Companies are likely bunching their layoffs together intentionally, timing their workforce reductions around the same period to avoid being the sole focus of negative headlines. When larger, more prominent companies announce layoffs, they often dominate media coverage, allowing smaller firms to make their cuts with less scrutiny. This strategy helps ensure that no single company gets singled out for criticism, as the news cycle gets flooded with multiple announcements, diluting the impact of any one company’s decision.
In summary, while the economy remains resilient under the Trump administration, several key indicators point to a cooling labor market, lingering tariff concerns, and growing signs of caution among investors, all of which suggest the possibility of a slowdown in the near future.
We remain cautiously optimistic and continue to use a quantitative investing approach. In times of uncertainty, it is more important than ever to follow the data and not make decisions based on emotions. Hilltop’s partnership with Helios relies on facts and data which we use during our recalculations on a bi-weekly basis. Our models adjust appropriately to market conditions.
DISCLOSURE
This update is not intended to be relied upon as forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Hilltop Wealth Solutions to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecast made will materialize. Additional information about Hilltop Wealth Solutions is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary Report which are accessible online via the SEC’s Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC # 801-115255. Hilltop Wealth Solutions is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting, or tax advice.