February Economic Update
- Barrington Capital Management, Inc.
- Feb 12
- 3 min read
Market Summary
As expected, January proved to be a headline-driven month with some news being anticipated such as the Trump Administration tariff statements, while other headlines arising out of left field with China’s artificial intelligence announcement. Inflation metrics also continued to disappoint, which led the Federal Reserve to maintain current interest rates. Volatility in price action increased with each news release but the major market averages managed to retrace their December losses with the large cap S&P 500 gaining 2.70%, the Nasdaq 100 rising 2.22%, and the Russell 2000 regaining 2.58%. (1)
Tariffs
The markets braced after the presidential inauguration for what seemed like the inevitable announcement of new tariffs by the Trump Administration. That news came at the very end of the month on January 31st when President Trump announced his intention to enact 25% tariffs on all imports from Canada and Mexico and an additional 10% tariffs on goods imported from China. Only a few days later, there was an agreement with Canada and Mexico to postpone these tariffs for 30 days to attempt to negotiate favorable terms for President Trump’s ambitions which largely encompass stricter border controls.
Some of the largest imports from Mexico include automobiles, crude oil, plastics, electrical machinery, and foods such as peppers, cucumbers, broccoli, and asparagus. Canada’s largest imports to the U.S. also include automobiles and crude oil, as well as lumber, paper products, iron, steel, fruits, and vegetables. (2)
The primary concern with any tariff implementation is inflation with the extra import costs being passed onto the consumer in the form of higher prices. A secondary concern is retaliatory tariffs being implement from these nations for American exports to their countries, also known as a “trade war” as each country attempts to inflict more pain upon the other. While the Canadian and Mexican tariffs are currently on pause, the Chinese tariffs have taken effect with retaliation from China by implementing a 10% tariff on crude oil, agricultural machinery, and large-engine cars imported from the U.S. (3)
Artificial Intelligence Race
The tech world was stunned after the release of a new Chinese-owned AI startup DeepSeek released their latest version of a large language model (LLM) to direct compete with Microsoft’s and OpenAI’s ChatGPT and Google’s Gemini. The results were stunning with early reports indicating the Chinese DeepSeek program is more powerful, more energy efficient, free to use, and was developed at a cost of a mere 3% of the price compared to the American AI leader ChatGPT. (4)
These developments have potentially far-reaching impacts as artificial intelligence speculation has accounted for the vast majority of U.S. stock market gains over the past two years. This new competition was developed at lightning speed at a fraction of the cost raising serious questions regarding American tech companies’ efficiency, strategic technical advantages beginning to wane, and potentially overvalued AI stock valuations. There is also concern for national security risks as China seemingly leaped frogged U.S. tech companies in a matter of months after it had taken American companies many years to develop this technology.
Looking Forward…
It is likely fair to assume more price and market volatility will be on the horizon in the coming months as more headline-driven moves occur regarding all of the developments we have seen over the past several weeks.
Monthly Financial Tip:
If you are a sole proprietor or manager of an LLC, check with your tax professional if any net earned income you receive from your business may be subject to self-employment tax.
Citations:
1. Charles Schwab, January 31, 2025
2. AGI Global Logistics, February 11, 2025
3. Associated Press; February 10, 2025
4. SERanking.com, February 06, 2025
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
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