Executive Summary
February was a challenging month for US stocks, as the uncertainty around how tariffs would affect businesses saw the S&P 500 pull back from its all-time high in the middle of the month. However, a strong performance from European and Chinese stocks helped our portfolios mitigate the impact of this. We also look at the possible impact of tariffs on businesses and how, despite tariffs, there are still opportunities for investors with a diversified portfolio.
February Performance
February proved to be a month of two halves, with US stocks rising to hit a record high in the middle of the month, and then as the US economic outlook started to worsen due to the uncertainty around tariffs, we saw a pullback in the S&P 500 to end the month in the negative. We will take a closer look at the possible impact of tariffs on stocks in this month’s market review, but first, let us assess how the portfolios have done so far in 2025.
Providend Portfolio Performance: Feb 2025 and Year-to-Date Feb 2025
Exhibit 1: Index Plus Portfolio Performance Feb 2025 (in USD)
Looking at the performance of the portfolios in February, we can see that the riskier portfolios with more equity or stock exposure fell over the month as stocks pulled back, and portfolios with more fixed income did better as the bonds provided the stability for the less risky portfolios.
In fact, our diversified equity portfolio’s performance of -0.67%, with its exposure to value stocks, Europe, and China, outperformed the S&P 500 Index, which was down about 1.4% in February. This diversification into a global portfolio, and also the tilts to value which prioritise holding fewer growth stocks such as Nvidia, contributed greatly to the 0.73% outperformance this month.
For fixed income, the falling US 10-year yield helped bond prices rise, and the allocation to very short-term bonds in our Fixed Income and lower risk portfolios also contributed to the positive performance for the month for the bond-heavy portfolios.
Exhibit 2: US 10-Year Treasury Yield
The strong start in January has helped cushion the blow in February, keeping our portfolios performing well on a year-to-date basis.
Exhibit 3: Index Plus portfolio performance Year to Date Feb 2025 (in USD)
What Are Tariffs and What Is the Impact on Stocks?
There has been a lot of talk about tariffs and how they will impact the global economy. Before we look at the possible impact, let us first try to understand what they are and why they are used. Tariffs are taxes or duties imposed by a government on imported goods. They are used to control trade by making foreign products more expensive, thereby encouraging consumers to buy domestically produced goods. Tariffs can serve multiple purposes, including:
- Protecting Domestic Industries – By making imported goods more expensive, tariffs help domestic producers compete more effectively.
- Generating Government Revenue – Tariffs can provide a source of income for the government.
- Retaliatory Measures – Countries may impose tariffs in response to unfair trade practices or as part of a trade war.
These are some of the possible reasons the US is implementing tariffs on imported goods.
How Tariffs Impact US Stocks
As of 5 March 2025, the US has imposed tariffs of 25% on goods from Canada and Mexico, and an additional 10% on top of a recent 10% increase on goods from China. This could potentially impact US stocks in various ways.
1. Automakers
The major car manufacturers are likely to experience higher cost pressures due to the tariffs. The current supply chain and logistics system that has been built up over decades based on the NAFTA (and then USMCA) free trade agreement, which means various parts of a car, such as transmissions, seats and engines are assembled from parts that go between the US, Mexico and Canada multiple times. If tariffs are imposed on the parts each time they cross the border, some estimates see the costs of a car made in North America rising by US$10,000 on average. This would hurt the bottom line of the big three US car manufacturers, which saw General Motors and Ford shares fall between 2-4% on the day the tariffs took effect.
2. Smartphone Makers
Apple is potentially vulnerable to the new tariffs on China, as many of its key smartphones are made in China. Apple has moved to diversify its supply chain, so it can mitigate some of the impact if the tariffs apply to smartphones. Bank of America estimates that if Apple can source 50% of its US smartphone inventory from outside of China, it will impact the full-year Earnings Per Share (EPS) by 12 cents, which is about 5% of its current EPS of $2.40. Apple stock did fall 3% when the first 10% tariff on China was announced, but it fell around 0.8% when the subsequent 10% was announced.
3. Restaurant Chains
More than 80% of the avocados in the US are imported from Mexico. This will impact the price of food items that use avocados. Mexico supplies more than 50% of the fresh produce in the US, particularly during the winter months. Chipotle estimates that if the tariffs take effect, it will raise costs by 0.6%. Net margins for the company are around 11-12%, so the overall impact could be to reduce profits by about 5%. Chipotle’s stock fell around 2% on the day the tariffs took effect.
4. Toy Makers
Hasbro, one of the largest toy makers in the US that sells Nerf Guns, Monopoly and Play-Doh, currently has 40% of its US sales come from China-made toys. The company expects to pass on the costs to consumers should the tariffs stay in place, while it works to diversify its supply chain further. The stock price fell about 3% the day the tariffs took effect.
As we can see, the short-term impact of the tariffs on businesses is wide-ranging, as the previous decades have seen many US and multinational companies build up global supply chains as globalisation spread. The sudden reversal of globalisation is likely to impact companies in the short term; however, the longer-term impact is more uncertain and harder to predict.
Impact of Initial Tariffs in 2017 on Stock Markets
If we look back at history, when the US first started tariffs in China in 2017, it seemed likely that both China and US stocks would be negatively affected.. However, the eventual outcome was that investors in both markets would have done well, and investors in China would have outperformed investors in the US over that period. Looking at the infographic from Dimensional Fund Advisors below, investing during President Trump’s first term would have been a positive investment experience.
How Are Markets Overall Reacting to Tariffs in 2025?
If we look at markets to 5 March 2025, we can see that despite raising tariffs on China, and the possibility that tariffs will be higher on Europe, Chinese and European stocks are far outperforming US stocks at the moment.
Exhibit 4: Major Global Indexes, Year to Date to 5 March 2025
This highlights a couple of key points:
- While we can understand the impact on tariffs, we don’t know how much is priced into current valuations, or how the market in aggregate will react to the news.
- Diversification is very important in a portfolio, as we cannot predict which markets or sectors will do well at any period of time. After two years where the US stock market has led the rest of the world, now we see Europe and China far outperforming US stocks.
The good news is that at Providend, we have stayed disciplined in our investment management and did not chase the trends of the past few years to allocate either more to the US or more to US growth/tech stocks. By maintaining our allocations to Emerging Markets and China and ex-US Developed world stocks, our portfolios are generally doing well versus a more US-focused investment allocation.
A Bumpy Road Ahead
This month, we have reviewed our performance in February, explored the impact of tariffs on the market, and examined the performance of major stock markets in the face of new tariffs.
As we move forward, it’s likely that market and business adjustments will continue, as companies work to understand the effects of tariffs and disruptions from global trade tensions. This may result in short-term fluctuations in stock prices.
At Providend, we are here to support you through the uncertainty, and your advisers are available should you have any questions or concerns during these volatile times. We thank you for your continued trust and support.
For more related resources, check out:
1. How Should Investors Respond to Trade Wars?
2. Staying the Course: Investing With Confidence in Uncertain Times
3. Is Bitcoin Worth the Risk for Your Retirement and Life Goals?
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