February 2025 - Market Commentary — Benchmark Financial

Date: February 2025

From: Investment Committee

Subject: Market commentary

________________________________________________________________________________

Monthly Market Summary

The S&P 500 Index returned +2.7%, marginally outperforming the Russell 2000 Index’s +2.5% return. Seven of the eleven S&P 500 sectors outperformed the index, as AI-related news led to a sell-off in Technology stocks.
Corporate investment-grade bonds produced a +0.6% total return as Treasury yields edged lower but underperformed corporate high-yield’s +1.4% total return as corporate credit spreads tightened further.
International stock returns were mixed. The MSCI EAFE developed market stock index returned +4.8% and outperformed the S&P 500 due to strength in Europe, while the MSCI Emerging Market Index returned +2.2%.

Stocks Trade Higher as Market Leadership Rotates After 2024’s Gains

Stocks traded higher to start 2025, but there was a change in market leadership as the rally broadened. Large Cap Value, which underperformed over the past 12 months, outperformed Large Cap Growth by over +2.5% in January. Likewise, the Dow Jones Index traded back toward its all-time high from early December after finishing the year in a downtrend. In contrast, the Growth factor, Nasdaq 100, and Technology sector each underperformed the S&P 500 after propelling the index higher throughout most of 2024. The catalyst: AI-related news from China, which raised concerns about U.S. AI-leadership and could have implications for broad U.S. stock market indices.

Technology Stocks Sell-Off After Chinese Startup Unveils Lower Cost AI Model

In January, there was a major artificial intelligence (AI) development that has potential implications for both the industry and the U.S. stock market. Chinese startup DeepSeek unveiled an AI model it claims can compete with top U.S. models, such as ChatGPT, but at a fraction of the cost. The model was developed using cheaper, less advanced chips, challenging the view that cutting-edge AI requires significant investment in high-performance, expensive hardware. If other companies follow suit and develop lower-cost models, it could influence the AI technology landscape and impact U.S. leadership.

DeepSeek’s AI model release triggered a sell-off in U.S. tech stocks that had been boosted by AI growth prospects. The model’s lower development cost raised questions about the risk of reduced demand for the high-end chips used to train AI models. The news was especially relevant for companies like Nvidia, a key supplier of the high-end, high-cost hardware favored by AI firms. The company lost nearly $600 billion in market capitalization, one of the largest single-day losses for a U.S. company. The selling pressure also extended to Microsoft, Alphabet, and Meta, reflecting broader concerns over the expensive valuations of AI-related stocks. While the news impacted a small subset of companies, the high weights of AI-related companies in the S&P 500 caused the index to trade lower on the announcement. Given the S&P 500’s high exposure to AI stocks, the market will be closely monitoring developments in the AI industry in the coming months.

Firm Disclosures

The information provided herein is for general informational purposes only and is intended for your personal use and should not be circulated to any other person without our permission and any use, distribution, or duplication by anyone other than the recipient is prohibited. No portion of this commentary is to be construed as an offer or solicitation to buy or sell a security, or the rendering of personalized investment advice. The views and strategies described herein may not be suitable for all investors and are subject to investment risks. The content is developed from sources believed to be providing accurate information. The information contained herein should not be relied upon in isolation for the purpose of making any investment decision.

We believe the information contained in this material to be reliable and have sought to take reasonable care in its preparation and conducted reasonable due diligence to ensure the third parties’ performance is not materially inflated or incorrect; however, we do not represent or warrant its accuracy, reliability, or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. We do not make any representation or warranty regarding any computations, graphs, tables, diagrams, or commentary in this material which are provided for illustration/ reference purposes only. These views, opinions, estimates, and strategies expressed in it constitute our judgement based on current market conditions and are subject to change without notice. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Investors may get back less than they invested, and past performance is not a reliable indicator of future results.

Data which may be found in this document is based on our research and should not be taken as a forecast or an estimate of likely future returns. Any reference to a market index is included for illustrative purposes only, as an index is not a security in which an investment can be made.

Investments involve some sort of risk including potential loss of principal; diversification alone cannot guarantee against loss. Any projected results and risks are based solely on hypothetical examples depicted. Forward-looking statements should not be considered guarantees or predictions of future events. More complete information is available, including product profiles, which discuss risks, benefits, liquidity, and other matters of interest. The value of any investment may fluctuate as a result of market changes. Past performance is no guarantee of future results, and there can be no assurance the investment strategies discussed herein will prove profitable.

All opinions, estimates, investment strategies and views expressed in this document are subject to change without notice information. The recommendations made for your customized portfolio may differ from any asset allocation or strategies outlined in this document. Benchmark Financial does not guarantee the future performance of any portfolio, guarantee any specific level of performance, or guarantee any strategy or overall management will be successful or that the client’s investment objectives will be met.

Benchmark Financial is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. Investment Advisory Services offered through Benchmark Financial Wealth Advisors LLC, an SEC Registered Investment Advisor. Insurance services offered through Benchmark Financial Insurance Advisors LLC. The Benchmark Financial Wealth Advisors ADV Form 2A, 2B & Form CRS, which describe the services offered, fees charged and any conflicts of interest, are available upon request or online at www.bfllc.com. Additional information about Benchmark Financial and our advisors is also available online at https://adviserinfo.sec.gov/firm/summary/287966.