February 2025
Market Update

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 with 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.

Summary of Market Returns

Current Positioning

In January, our core equity model triggered us to move out of one of our small-cap positions and into large-cap growth. In this model, we continue to not hold international equity. However, at the beginning of February, we added some international to our rotation strategy. We continue to predominately hold large-cap domestic equity. This focus reflects a pattern we’ve observed over the past several years, and we remain committed to monitoring market conditions closely and adjusting as needed.

Turning to bonds, we continue to favor bank loans in our tactical bond strategy. We remain fully invested and continue to experience less volatility, attractive yields, and lower interest rate risk. While this approach involves certain tradeoffs, we are actively monitoring the bond market and current holdings and will adapt our holdings as market conditions continue to evolve in 2025.

As always, if you have questions about your risk level, please reach out and schedule a meeting so we can discuss this further. We appreciate the trust and confidence you’ve placed in Copperwynd Financial!

Upcoming Events:

Q1 2025 Economic and Market Update –

• Wednesday, February 19th, 2025 at 12:00PM Mountain Time

Copperwynd Financial is hosting a virtual discussion for our clients to provide insight into the current economic environment and investment trends. The discussion should last 30 minutes with time remaining for additional questions and answers. Please register at the link provided below.

Register in advance for this webinar: https://us02web.zoom.us/webinar/register/WN_yNDpL3duRa-xa-mX5e6nOg
After registering, you will receive a confirmation email containing information about joining the webinar.

Client Appreciation Spring Training Games –

Game 1:

• Date: Tuesday, March 11. 2025

• Time: Game starts at 1:05 PM

• Where: Cubs – Sloan Park

• First Base Party Deck

• 2510 W. Rio Salado Parkway Mesa, AZ 85201

• Teams: Chicago Cubs vs. Milwaukee Brewers

Game 2: Currently at capacity – waitlist available. Let us know if you'd like to be added!

• Date: Saturday, March 15, 2025

• Time: Game starts at 1:10 PM

• Where: Salt River Fields

• Blue Moon Landing Deck

• 9800 Talking Stick Way, Scottsdale, AZ 85256

• Teams: Arizona Diamondbacks vs. Chicago White Sox

If you would like to join us, please email kcostlow@copperwyndfinancial.com or give us a call at the office 480-348-2100 to reserve tickets. In an effort to let as many clients attend as possible, please limit your initial request to two per family. Once you have reserved your tickets, more information will follow.

Hope to see you there!

If you have any questions, please do not hesitate to contact our office at 480-348-2100.

FINANCIAL PLANNING
401(K) ALLOCATION

To download the February 2025 Newsletter: CLICK HERE

Copperwynd Financial, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Copperwynd Financial, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Copperwynd Financial, LLC unless a client service agreement is in place.

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This commentary reflects the personal opinions, viewpoints and analyses of the Copperwynd Financial, LLC employees providing such comments and should not be regarded as a description of advisory services provided by Copperwynd Financial, LLC or performance returns of any Copperwynd Financial, LLC client. Investments in securities involve the risk of loss. Past performance is no guarantee of future returns.

The S&P 500 Index or the Standard & Poor’s 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P 500 is a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading. Note: Investors cannot invest directly in an index. These unmanaged indices do not reflect management fees and transaction costs that are associated with most investments.