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Economy & Markets 

  • February began with a flurry of tariff activity toward Mexico, Canada, and China. While the tariffs were delayed against Mexico and Canada for a month, investors showed their concern initially by driving down stock prices. The reality of using tariffs as a negotiating tool will cause unease for investors and heightened volatility for markets. 
  • The economy grew at an annualized rate of 2.3% in the fourth quarter, and 2.8% for the full year. Underlying growth was actually higher as real final demand to domestic purchasers grew at 3.2% in the quarter after backing out international trade.

 Equities

  • The S&P 500 continued its rise in January, advancing 2.8% despite uncertainties related to government policy, trade, and fears of AI technology commoditization. A diverse mix of growth (Communication Services), defensive (Health Care), and cyclical (Financials) sectors outperformed to start the year. Value performed better than growth and helped to broaden market participation beyond the Magnificent 7 stocks.
  • S&P 500 sales and earnings have surprised to the upside thus far in Q4 earnings reports with management teams providing constructive 2025 outlooks. However, at 21.5x expected forward earnings, equity valuations remain expensive versus historical averages.  

Fixed Income 

  • Yields ended the month slightly lower for maturities greater than 2 years as the market digested the potential impact of increased tariffs.
  • Credit spreads remain tight, but are still not showing any signs of stress, signaling comfort with the economic outlook.

 Employment

  • Job hirings rose by 143,000 in January, lower than expectations but the prior two months were revised higher by 100,000 jobs, thereby reassuring investors that the jobs market remains strong. The unemployment rate declined to 4.0% from 4.1% in the prior month.
  • Wages grew by a strong 4.1%, which being higher than the inflation rate means workers are getting real increases in pay.

Federal Reserve 

  • At the latest Federal Reserve meeting in January, the decision was made to hold interest rates steady as the Fed adopts a “wait and see” policy. Chairman Powell specifically said the Fed does “not need to be in a hurry” to adjust their current policy.
  • January’s CPI data revealed inflation running higher than expected. This will likely place more pressure on the Fed to keep rates higher for longer.

Issues to Watch

  • 2025 appears to be coalescing around four broad areas, the direction of Employment and Inflation, the impact of Tariffs on the economy and how the Fed will respond to the inevitable cross currents they cause.
  • We are monitoring the intense negotiations amongst Republicans in Congress as they continue debating on tax policy, budget cuts, and increased funding for immigration enforcement and national defense.


A graph depicts economic metrics as of February 2025

1. Data provided by Bloomberg. Metrics are as of month-end or most recent publication
2 Provided by U.S. Real GDP Economic Forecast Survey Median
3 Provided by World Real GDP Economic Forecast Survey Median
4 Provided by Bloomberg Intelligence Forecast
5 Provided by World Probability Forecast
6 Arrows represent a month-over-month change



A chart depicts index returns as of February 2025

Asset Allocation / Tactical Positioning - February 2025

A chart depicts asset allocation/tactical positioning for February 2025

1 Equity tactical weights are relative to the Cambridge Trust Core Equity allocation and is comprised of 80% S&P 500 and 20% MSCI AC World ex-U.S. Index.
2 Fixed Income tactical weights are relative to the Cambridge Trust Core Taxable allocation and is comprised of 100% Barclays Intermediate Gov/Credit Index.
3 Below investment grade holdings include high yield and emerging market debt mutual funds. Represents an out-of-benchmark allocation that will be reflected as an overweight position relative to the Barclays Intermediate Gov/Credit Index if any allocation is held.
4 Alternative tactical weights represent an out-of-benchmark allocation that will be reflected as an overweight position when utilized and neutral position when not.
5 Direction arrow highlights any recent changes of the overall allocation after a recent tactical asset allocation or strategy change. Last changes were made at January 2025 Asset Allocation Committee meeting.

Cambridge Trust Wealth Management is a division of Eastern Bank. Views are as of February 2025 and are subject to change based on market conditions and other factors. The opinions expressed herein are those of the author(s), and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, Eastern Bank Wealth Management, Cambridge Trust Wealth Management or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice based on market conditions and other factors. These views and opinions should not be construed as a recommendation for any specific security or sector. This material is for your private information, and we are not soliciting any action based on it. The information in this report has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information. Past performance does not guarantee future performance. 

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