US stocks concluded a tumultuous month with a volatile trading session on Friday. Despite gains on the last trading day, the Dow closed up by 601 points, or 1.39%, while the S&P 500 and Nasdaq Composite rose by 1.58% and 1.63%, respectively. Nevertheless, all three major indexes ended the month in negative territory amidst heightened market volatility and economic uncertainty.
New inflation data aligned with expectations, but consumer spending plummeted far beyond economists' predictions in January, marking the most significant monthly decline since February 2021. This backdrop of reduced consumer activity and persistent inflation concerns has fueled anxiety among investors, reflected in CNN's Fear and Greed Index registering "extreme fear."
Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, remains cautious about market conditions due to high valuations. The Nasdaq experienced a 3.5% loss this week and a 4.5% decline over the month, its worst performance since April 2024. Factors contributing to the Nasdaq's decline include inflation risks, decelerating growth, and challenging outlooks for its stocks compared to other assets.
“Concerns about potential economic growth deceleration may be fostering increased risk aversion, potentially leading investors to shift away from the more volatile Nasdaq index in favor of more stable investment options,” – David Smith, a professor of economics at Pepperdine Graziadio Business School.
Tesla shares have been particularly hard hit, dropping approximately 26% over the past month, underscoring investor nervousness surrounding high-growth tech stocks. The VIX, Wall Street's fear gauge, surged to its highest level this year as market participants brace for possible future turbulence.
Strategists at UBS advised investors to prepare for continued volatility, yet they maintain that the bull market is intact.
“We think the bull market is intact driven by healthy economic and profit growth, supportive Fed policy and AI spending/adoption,” – David Lefkowitz, head of US Equities at UBS Global Wealth Management.
However, UBS also highlighted the potential for increased volatility due to policy uncertainty and trade frictions.
“But we have also cautioned that volatility would likely be higher this year due to policy uncertainty and trade frictions. Therefore, we have been highlighting that short-term hedges may be worth considering,” – David Lefkowitz.
The Atlanta Federal Reserve Bank revised its estimates for economic growth in the first quarter of 2025, projecting a decline of 1.5%. This downward revision echoes concerns raised by Jay Hatfield, CEO and CIO at Infrastructure Capital Advisors.
“This huge drop in the estimate reflects the very weak data that has been coming out on retail sales, net imports, inventories and new home sales,” – Jay Hatfield.
Despite these challenges, some experts remain unfazed by recent market fluctuations.
“The stock market’s recent declines are simply garden variety volatility, largely because February is historically a volatile month, and because we saw significant gains throughout January,” – Robert Ruggirello, chief investment officer at Brave Eagle Wealth Management.
Nonetheless, investor focus remains fixed on the uncertain growth trajectory as real spending unexpectedly fell in January due to weaker consumer demand.
“Investors will continue to focus on the uncertain growth trajectory as real spending unexpectedly fell in January from weaker consumer demand,” – Jeffrey Roach, chief economist at LPL Financial.