Will February 2025 be a bad month for the stock market? What about the summer?

January 17, 2025

Will February 2025 be a bad month for the stock market?

We believe so. No one knows what will happen. The future has not been created yet. There are three possibilities-and only three-for the stock market in February 2025: up - same - down (USD). The stock market may go up, may stay the same, or may go down.

Historically, February is not the worst month for the stock market and is in the middle of the pack. The summer months, September, August, and June are typically the worst performers due to profit taking and summer vacations. February has been a mixed performer. February's relative position depends on the specific time period and data set analyzed.

February's Historical Performance

February is typically slightly weaker than average but not consistently he worst by any measure. On a rolling historical basis (e.g., over the past 75 years), February has produced small positive or near-flat returns, depending on market conditions. For the S&P 500, February has had an average annualized return near flat or slightly positive, which places it in the middle of the pack rather than near the bottom.

February's historical performance in presidential inauguration years.

In the past 75 years, the average S&P 500 return for the month of February in presidential inauguration years has been negative (-1.48%).  

• 2021 (Biden): The S&P 500 gained +2.61% in February 2021. The market was buoyed by optimism surrounding COVID-19 vaccinations and fiscal stimulus.
• 2017 (Trump): The S&P 500 rose +3.72% in February 2017, reflecting positive investor sentiment and expectations of pro-business policies.
• 2009 (Obama): The S&P 500 fell -11.00% in February 2009 due to the ongoing global financial crisis and uncertainty about economic recovery.
• 2005 (Bush): The S&P 500 gained +2.05% in February 2005, driven by strong earnings reports and a recovering economy.
• 2001 (Bush): The S&P 500 fell -9.20% in February 2001 as the dot-com bubble burst and recession fears loomed.
• 1997 (Clinton): The S&P 500 rose +0.87% in February 1997, amid economic growth and market optimism.
• 1993 (Clinton): The S&P 500 fell -0.68% in February 1993 due to market uncertainty about new fiscal policies.
• 1989 (Bush): The S&P 500 rose +1.79% in February 1989, reflecting a strong economy and corporate earnings.
• 1985 (Reagan): The S&P 500 rose +1.75% in February 1985, during a period of economic expansion.
• 1981 (Reagan): The S&P 500 fell -5.25% in February 1981 as investors worried about inflation and rising interest rates.
• 1977 (Carter): The S&P 500 fell -3.40% in February 1977, as economic uncertainty weighed on investor sentiment.
• 1973 (Nixon): The S&P 500 fell -2.44% in February 1973, marking the start of a bear market due to inflation and geopolitical tensions.
• 1969 (Nixon): The S&P 500 fell -3.01% in February 1969, reflecting concerns about inflation and tighter monetary policy.
• 1965 (Johnson): The S&P 500 rose +1.47% in February 1965, supported by strong economic growth.
• 1961 (Kennedy): The S&P 500 rose +0.67% in February 1961, as investors anticipated economic reforms.
• 1957 (Eisenhower): The S&P 500 fell -5.30% in February 1957 during a period of economic recession.
• 1953 (Eisenhower): The S&P 500 fell -3.50% in February 1953, amid concerns about a post-war economic slowdown.
• 1949 (Truman): The S&P 500 rose +2.21% in February 1949, reflecting a recovering economy after World War II.

While February is not a standout month for strong returns, it is not necessarily a super bad month either.  Many investors are optimistic and perhaps overly excited about the economic prospects of the Second Coming of Trump. Many hope that Trump will bring an unprecedented level of economic prosperity to our Nation. We doubt it. We think that Trump's second term will be more of the same, with normal economic growth.

The market is currently overpriced and there may be a quick correction beginning as early as next month. Such a correction would be healthy in the long run. We think that the market has pre-priced an economic miracle that neither Trump nor South African boy, richest man in the world, future TikTok co-owner, Elon Musk will deliver. We believe that there will smart profit taking will begin as early as February 2025 and that a sharp and quick market correction will occur by the summer. 

How will the markets perform in the next four years?

No one knows. The future has not been created yet. Our guess is that Trump's second presidential term may lead to positive market returns just because Trump will let almost everything the way it is. There will not be real massive deportations. The country will continue with semi open borders taking advantage of immigrants. There will not be massive tariffs. The country will continue with low tariffs taking advantage of foreign workers. There will not be spending cuts. The country will continue over spending taking advantage of the dollar's status as the global reserve currency while it lasts. There will not be magical global peace. The country will be unable to contain the anti-American ambitions of rivals such as Putin in Russia, the Chinese Communist Party (CCP) in China, and the regime in Iran. 

Despite all the campaign promises, Trump will leave everything roughly the same and practically unchanged. Trump, Musk, and the other musketeers wannabe oligarchs may push for a massive package of Constitutional amendments to create a new country, but that will probably fail unless they are willing to begin a Second Civil War. 

If everything stays as it is, the net effect of Trump's second term will be that taxes will be reduced (or at least not increased) and that regulations will be reduced and eased, which should help corporations and financial markets. That's why we are generally bullish about the Second Coming of Trump in the long run. We do expect some bumps along the way, beginning with a potential decline as soon as next month and a sharp market correction in the summer. We'll see. 

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