Weekly market wrap

Published February 21, 2025
 Two people looking at paperwork and iPad

Two months into 2025: Three market trends to watch

Key Takeaways: 

  • Overall, despite bouts of uncertainty and market volatility in the early weeks of 2025, stock markets for the most part have moved higher across much of the globe. The S&P 500 is up about 4%, while the MSCI World index is up about 5%, as of February 20. This is a noteworthy trend, particularly after two years of solid gains across U.S. and world markets.
  • In our view, higher global stock markets are likely a result of lower central-bank rates and steady economic and earnings growth, despite the overhang of tariffs and inflation.
  • We also highlight three additional trends that have emerged in 2025 that we are watching carefully as the year unfolds. These include
    • U.S. mega-cap technology stocks lagging the broader market in 2025;
    • Treasury yields stabilizing after rising sharply; and
    • European equities outperforming the U.S. to kick-off 2025.
  • In our view, these trends underscore the importance of portfolio diversification across sectors, regions and asset classes.

Two months into 2025, we have identified three key themes to watch and are providing our take on each of these below.

1) Mega-cap technology stocks are lagging the broader market in 2025

In 2024, the mega-cap technology stocks led broader stock markets, particularly in the first half of last year. The technology-heavy Nasdaq and the "Magnificent 7"1 stocks, which are considered the leaders of the artificial intelligence (AI) trade, sharply outperformed the market in 2024 and drove over 50% of the S&P 500 returns.* This year, the performance of these stocks has been mixed, with only two of the seven Mag-7 stocks outperforming the S&P 500, and with the group lagging behind most other asset class returns.

1 Stocks include AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA

 This chart shows that the Magnificent 7 stocks outperformed other global equity markets and bond markets in 2024
Source: Bloomberg, Edward Jones. Magnificent 7 represented by Apple, Amazon, Alphabet, NVIDIA, Tesla, Meta and Microsoft.
 This chart shows that the Magnificent 7 stocks have lagged other global equity and bond markets in 2025.
Source: Bloomberg, Edward Jones. Magnificent 7 represented by Apple, Amazon, Alphabet, NVIDIA, Tesla, Meta and Microsoft.

Our take: 

The mega-cap technology trade remained somewhat vulnerable heading into 2025. After the Magnificent 7 returned over 150% in 2023 and 2024, valuations on these stocks were extended, although perhaps not to the same degree as the 1999 Tech Bubble, given that earnings growth has been robust for most of these companies.

In addition to valuation concerns, these are global companies that may be more exposed to tariff and trade uncertainty, especially in the semiconductor and hardware space.

Finally, earnings growth in 2025 is expected to be more balanced. Both tech and non-tech sectors are expected to contribute to earnings growth, which supports a broader set of market leadership.

This has played out thus far in 2025, with 10 of the 11 S&P 500 sectors positive for the year, and with areas like financials, energy and health care outperforming, while technology and consumer discretionary have lagged. In our view, this broadening theme has legs, and we continue to favor both large-cap and mid-cap stocks across growth and value sectors.

 This chart shows the price return of the S&P 500 and GICS sectors of the S&P 500
Source: FactSet. Price return of the S&P 500 and GICS sectors of the S&P 500.

2) Treasury yields stabilize after rising sharply since September last year

The U.S. 10-year Treasury yield rapidly rose by nearly 120 basis points (1.2%), from about 3.6% to 4.8%, from September to early January. This sharp move higher was driven by a combination of better-than-expected U.S. economic data, uncertainty around inflation and spending by the new administration, and the idea that the Federal Reserve would likely not be cutting interest rates much further in 2025. Over the past few weeks, however, Treasury yields have stabilized, and the 10-year yield has returned to around 4.5%.

 This chart shows that the 10-year Treasury yield has stabilized around 4.5% in recent months while the 2-year yield has been around 4.3%
Source: Bloomberg.

Our take: 

We see a few reasons why yields have now stabilized and returned to around 4.5%. First, despite concerns, inflation data thus far has been generally contained. In fact, we will be getting personal consumption expenditures (PCE) inflation data next week, which is often considered the Fed's preferred inflation gauge, and the expectation is for the headline inflation rate to moderate from 2.6% to 2.5%. While this is still above the Fed's 2.0% target, it is well below recent highs of over 7.0% inflation.

Second, the new administration continues to focus on cost cutting, with a particular eye toward the federal government, and markets may see this as a reversal from recent deficit spending. This could also help keep Treasury yields contained.

Finally, there have been growth concerns that have been creeping up in recent data points. Retail sales for January came in below expectations, bellwether consumer companies like Walmart have been giving soft guidance, and the potential for tariffs may weigh on consumption. Not only does the prospect of moderating economic growth weigh on bond yields, but it also puts the idea of Fed rate cuts back on the table.

In our view, if the economy or labor market slows in the quarters ahead, the Fed will likely start to consider one or two rate cuts for the remainder of this cycle, which would be supportive of stock and bond markets. More broadly, we believe Treasury yields will likely remain range-bound, with the 10-year in the 4% to 4.5% range for much of the year.

3) European equities outperform the U.S. to kick off 2025

Perhaps one of the most interesting trends of 2025 thus far has been the outperformance of European stock markets versus most of the globe. The EuroStoxx 50 index is up about 13% this year, compared with the S&P 500 up 4% and the MSCI World Index up about 5%.* This comes after its notable underperformance versus the U.S. and global markets last year.

 This chart shows that European stocks as measured by the EuroStoxx 50 have outperformed year-to-date.
Source: Bloomberg, as of Feb 20, 2025.

Our take: 

We believe the outperformance of European equities has been driven by a few key reasons. First, we are seeing European markets rally as the U.S. dollar has come down from recent highs, which is supportive of international stocks and sentiment. We have also recently seen more positive economic surprises coming out of the eurozone than in the U.S.

 This chart shows that the EuroZone Citi Economic Surprise Index has trended higher in recent weeks while the U.S. index has trended lower.
Source: Bloomberg.

The recent increased chatter about a potential settlement of the Russia-Ukraine war has helped European stock markets as well. This could bring stability to the region and potentially reduce oil and energy prices. And finally, upcoming elections in major economies like Germany could usher in a period of higher fiscal spending.

Nonetheless, while there have been several reasons for near-term optimism in Europe, there is less certainty that these factors are sustainable, and we believe perhaps the good news is now getting factored into the stock prices. We would not expect European stock markets to maintain this pace of gains for the full year, and we continue to see U.S. equities outperforming international developed markets longer-term.

Portfolio diversification remains critical in 2025

Overall, we are just two months into 2025, and already some notable trends are appearing in the markets. These include 1) the broadening of stock-market leadership beyond U.S. mega-cap technology, 2) the stabilization of government bond yields, and 3) European equities showing signs of life after underperforming.

For those investors with diversified portfolios, these will all likely be welcome developments. For example, for investors in the U.S. equity market, having both large-cap and mid-cap stocks across both growth and value sectors could help mitigate the uncertainty around mega-cap technology in the near term. Similarly, having some allocations to investment-grade bonds and international equities would provide exposure to the second two trends as they emerge this year. Thus, the theme of diversification, we believe, remains a critical one in the year ahead.

More broadly, after two strong years in markets with low volatility, we would expect market returns to moderate and volatility to increase – but for long-term investors, any pullbacks could be viewed as opportunities to rebalance and diversify portfolios across sectors, regions and asset classes. Given we don't yet see the scope for a downturn or recession, or Federal Reserve rate hikes, market corrections may still come in the context of an ongoing, albeit aging, bull market.

Mona Mahajan
Investment Strategy

Source: *Bloomberg

Weekly market stats

Weekly market stats
INDEXCLOSEWEEKYTD
Dow Jones Industrial Average43,428-2.5%2.1%
S&P 500 Index6,013-1.7%2.2%
NASDAQ19,524-2.5%1.1%
MSCI EAFE*2,443.30-0.2%8.0%
10-yr Treasury Yield4.43%-0.1%0.5%
Oil ($/bbl)$70.26-0.7%-2.0%
Bonds$98.020.3%1.1%

Source: FactSet, 2/21/2025. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results. *Morningstar Direct 2/23/2025.

The week ahead

Important economic releases this week include PCE inflation and a read on consumer confidence.

Review last week's weekly market update.


Mona Mahajan

Mona Mahajan is responsible for developing and communicating the firm's macroeconomic and financial market views. Her background includes equity and fixed income analysis, global investment strategy and portfolio management.

She regularly appears on CNBC and Bloomberg TV, and in The Wall Street Journal and Barron’s.

Mona has a master’s in business administration from Harvard Business School and bachelor's degrees in finance and computer science from the Wharton School and the School of Engineering at the University of Pennsylvania.

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Important Information:

The Weekly Market Update is published every Friday, after market close. 

This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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