February was a month full of ups and downs in the stock market, showcasing what we in the financial world call “risk.” But risk isn’t about losing money—it’s about the volatility and fluctuations in the value of investments. There was plenty of political noise and market buzz around AI, and several key economic data points influenced market behavior.

 

 

One of the biggest factors driving the market in February was inflation. On February 12, we got a report showing that inflation had ticked up to 3% year-over-year in January, up from 2.9% in December. The Federal Reserve targets 2%, so this slight increase shows inflation isn’t moving in the right direction. Core inflation, which excludes volatile food and energy prices, also rose to 3.3% in January from 3.2% in December. As a result, many economists adjusted their expectations, now predicting fewer interest rate cuts and further into the year than previously expected.

 

 

The increased volatility from February had mixed results on the markets. The S&P 500 up 1.44%, Dow up 3.32%, and Nasdaq slightly down by -.5% for the year. 

 

Consumer confidence also dropped sharply in February, falling to 98.3 from 105.3 in January. This marks the third consecutive month of declining consumer sentiment, mainly due to concerns over inflation and the rising costs of everyday goods. Since consumer spending makes up a large portion of the economy, this is a key indicator to watch. A negative GDP growth for two consecutive quarters would signal a recession, so the health of consumer confidence is critical.

 

 

Job openings fell to a three-month low in December, hinting that companies might be slowing down on hiring. However, other aspects of the job market, like the hiring rate, layoff rate, and quitting rate, remained steady. As for corporate earnings, the fourth-quarter results came in better than expected, with S&P 500 earnings projected to grow around 12% from Q3.

 

Amazon posted strong earnings, though it issued a weak outlook for the upcoming period. Microsoft and Alphabet (Google’s parent company) are heavily investing in AI, with Microsoft set to spend $80 billion and Alphabet $75 billion. While AI is a hot topic, there is some skepticism about these mega-cap stocks as they have underperformed the broader market this year.

 

 

In February, Federal Reserve Chairman Jerome Powell and other Fed officials made it clear that the central bank isn’t in a hurry to change interest rates. Some Fed officials, like Cleveland’s Beth Hammack, suggested that the current rates are no longer “meaningfully restrictive.” Others, such as Philadelphia Fed President Patrick Harker, think that the current rates are still appropriate to control inflation.

 

Market futures are currently predicting that the Fed Funds rate will stay neutral, though the likelihood of a rate hike is now higher than a rate cut. The higher interest rates are a headwind for the market, making it more expensive for companies to borrow money and slowing down growth.

 

 

As of February, the stock market is going through an adjustment period. While many indexes were down, six out of the eleven sectors of the S&P 500 saw positive growth. Growing skepticism about the mega cap stock is already reflecting this year with the magnificent seven under performing the S&P 500 year to date while Chinese stocks surged after the release of DeepSeek.

 

Inflation’s resurgence, the probability of higher interest rates, concerns over tariffs, and a slightly weaker jobs report have made investors cautious. But it’s important to remember that this is a natural adjustment for the market, one we’ve seen before. Market breadth is expanding, and 56% of companies in the S&P 500 have beaten the market this year.

 

 

The market may be facing some headwinds, but it’s important to stick to your investment strategy, tailored to your short-term and long-term goals. There’s always risk involved, but with risk comes potential reward.

 

Stay informed, stay focused, and remember: investing is a long-term game.

 

 

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