US stocks seesawed Friday, but all three major indexes closed the month in the red — a sign of increasing unease in markets.
Volatility gripped markets as traders closed out a dismal February that wiped out some gains. “Extreme fear” was the sentiment driving markets on Friday and for the fourth day in a row, according to CNN’s Fear and Greed Index.
Stocks initially rose Friday morning, buoyed by cooling inflation data that provided relief for investors. Yet markets moved into the red midday following a very public heated exchange at the White House between President Donald Trump and Ukraine President Volodymyr Zelensky that stoked uncertainty around geopolitical stability.
The VIX, Wall Street’s fear gauge, popped to its highest level this year.
In afternoon trading, markets recouped losses, and the major indexes surged higher to close out the day. The Dow ended the day up 601 points, or 1.39%, while the broader S&P 500 rose 1.59% and the Nasdaq Composite gained 1.63%.
Yet US markets sputtered in February and slid this week. The benchmark S&P 500 slid 1% this week and is down 1.4% this month. The tech-heavy Nasdaq was down 3.5% this week and 4% this month, its worth month since April 2024.
“We believe there is valid concern in the markets about the amount of money being spent on Artificial Intelligence datacenters and capex, considering news from China AI startup DeepSeek in late January,” said Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, in a Friday note.
Tentarelli said uncertainty about AI spending coupled with concerns about economic growth has led many of the stocks leading the Nasdaq to underperform.
The Nasdaq is heavily weighted toward tech and was driven higher last year by companies like Nvidia (NVDA), Tesla (TSLA) and Palantir (PLTR). Yet those surging tech stocks have slowed down this month. Tesla shares are down about 26% over the past month.
The reasons for the Nasdaq’s decline range from inflation risk to decelerating growth to its stocks having tough outlooks compared to other assets, said Ted Mortonson, managing director at Baird, in an email.
“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,” said David Smith, a professor of economics at Pepperdine Graziadio Business School.
Nvidia posted strong quarterly earnings on Wednesday, though its stock’s high valuation raises the question of how much more room there is to run.
Still, the broader market remains near its all-time high, reached just last week. And the bumpiness in the market isn’t all that unusual for this time of year.
“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,” said Robert Ruggirello, chief investment officer at Brave Eagle Wealth Management.
Slowdown in consumer spending flashes warning signal
While new inflation data matched expectations, other economic data released Friday revealed cracks in the economy that contributed to weary investor sentiment: Consumer spending pulled back far more than economists expected in January and posted the biggest monthly decline since February 2021.
“Investors will continue to focus on the uncertain growth trajectory as real spending unexpectedly fell in January from weaker consumer demand,” said Jeffrey Roach, chief economist at LPL financial, in a note.
The Atlanta Federal Reserve Bank’s estimates for economic growth in the first quarter of 2025 were also revised on Friday to project a decline of 1.5%, rather than growth of 2.3%.
“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,” said Jay Hatfield, CEO and CIO at Infrastructure Capital Advisors, in an email.
Chris Zaccarelli, chief investment officer for Northlight Asset Management, said he is cautious about the market due to high valuations.
At UBS, strategists advised preparing for volatility ahead, though considered the bull market intact.
“We think the bull market is intact driven by healthy economic and profit growth, supportive Fed policy and AI spending/adoption,” said David Lefkowitz, head of US Equities at UBS Global Wealth Management, in a Friday note.
“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,” said Lefkowitz.
