Market Pulse

February is the shortest month of the year, but it felt anything but brief as markets slumped.  The Nasdaq led the way down, sliding nearly 4%, while the Dow dropped 1.6% and the S&P 500 fell 1.4%. Much of that decline came in the final week alone. The Nasdaq tumbled 3.5% and the S&P 500 fell nearly 1% after concerns over slowing economic growth, President Trump’s tariff plans, and rising geopolitical risks put investors on edge.

February has historically been one of the worst months of the year in terms of stock-market performance, especially in a post-election year.  Since 1950, February, on average, has delivered a 1.3% monthly decline for the S&P 500 in the years following U.S. presidential elections (Source: Carson Group)   On the other hand, March has typically been a positive month for major US stock indexes.  According to the Stock Trader’s Almanac, the S&P 500, Dow, and Nasdaq have advanced more than 64% of the time, with average gains ranging from 0.7% to 1.1%.

It would be great if we could just close our eyes and hope history repeats itself again, but there are a handful of other challenges on the horizon.  In addition to the concerns that caused February to slump, a potential government shut down lies ahead, not to mention the impact of Federal job cuts. Uncertainty in the job market and tightening labor market can cause people to spend less money, thus, negatively impacting consumer spending which is the target key to overall GDP or economic growth.

At this point, we might as well also throw in growing concerns that the substantial spending around AI may not provide the significant earnings and revenue growth that many technology companies need to appease Wall Street. Since the technology sector has driven market growth for the last few years, this type of uncertainty raises the likelihood of investors taking profits and potentially causing a correction.

This is the stuff that no one likes to talk about, but a correction, or a 10% pull back from a market high, typically occurs about once a year and the S&P 500 hasn’t seen a correction since October 2023. Therefore, we continue to feel it’s prudent to be well diversified to mitigate risk.  After all, a market dip can quickly turn into a market rip higher.  However, that doesn’t mean it will happen right away or that markets couldn’t dip even lower before their next leg higher.  

Overall, current events and data may point to a near-term softening of the economy, yet longer-term improvements in key areas could prove to be an essential ballast to help change the tide.  Factors including extensions and improvements in taxes, compromises on tariffs, short-term cease-fire resolutions to geopolitical risks, and a possible DOGE dividend check (like them or not), could provide a boost to economic activity and consumer confidence needed to help minimize any potential slow-down.

As a result, we continue to favor value stocks over growth, in particular those that pay dividends (see back story). Fixed income and preferred stocks also remain attractive in terms of pricing and yields based on our year-end estimates for 2025.

The 25-Year Life Of A Dividend

When markets get volatile, investors seek a sense of stability to offset the doom and gloom headlines. This is one reason why we feel dividends from large cap companies that have both a history of paying shareholders as well raising those payments each year can be a major benefit to investors during uncertain times.  For example, The Coca-Cola company (KO) has not only been paying a dividend for over six decades, it has raised that dividend every year for the last 64 years.  

As you can see from the sample chart below, if we just look at the last 25 years, the impact of those dividend increases are not only noteworthy in terms of the annual income it produces but also the overall return during that time. The sample illustrates an investor purchasing 500 shares of Coca-Cola Stock on 1/1/2000. The shares were traded at $29.50. So, it would have cost them $14,750.  The investor would have then started receiving dividends after the 1^st Quarter of the year (April 2000).

At the dividend payment in Dec 2024, the stock was trading at $62.50. So, the $14,750 initial investment was then worth $62,500. Plus, the annual income went from $340 to $1,940. An increase of $1,600 per year and almost 6 times the original annual payment.

*The stock did a 2 for 1 split in 2012 which meant if an investor owned 500 shares, they now owned 1,000 shares.  As a result, the dividend payment amount in column 2 decreased in conjunction with the share increase.  As a result, the increased number of shares combined with the new dividend amount, continued to increase quarterly and annual income.