Noteworthy Numbers

16,091

The Nasdaq Composite Index closed at an all-time high of 16,091 on the last day of February beating its previous closing high set back in November of 2021.

11

All 11 sectors of the S&P 500 were positive in the month of February.  

2.85

The latest reading of Core PCE, the Fed’s preferred inflation metric, came in at 2.85%, its lowest reading since March of 2021. 

Our Take

By Bobby Moyer, Advisor & Sandy Wiggins, Managing Director

The large-cap growth category continued its strong performance in February with the S&P 500 Large Cap Growth Index positive by 7.3%. However, it was mid-cap growth stocks that posted the highest returns of the month with the S&P 400 Mid Cap Growth Index positive by 9.71%. The overall S&P 500 was positive 5.34% for the month while the S&P 400 Mid Cap Index was positive by 5.94%. Small-cap stocks trailed as the S&P 600 Small Cap Index was positive 3.32%.

Looking at international returns, emerging markets had a strong month as the MSCI Emerging Markets Index was positive by 4.77% just slightly trailing the S&P 500 while the Developed International Markets Index, the MSCI EAFE, was positive by 1.84%. Emerging markets experienced a strong month after the MSCI China Index was up 8.4%. If you read last month’s newsletter you may remember that China makes up almost 25% of the emerging markets index.

Longer-term interest rates spiked sharply in February as the 10-year treasury rose from 3.87% to 4.25% driving down bond prices. The Bloomberg US Aggregate Bond Index was negative by 1.56% for the month. Shorter-term bonds were also negative with the Bloomberg 1-3 year Aggregate Index down 36 basis points in February. Higher yielding bonds were positive, with the US Bloomberg High Yield Index up 29 basis points.

When looking at the returns of the S&P 500 sectors it is interesting to note that all the sectors were positive in the month of February. Despite AI and NVIDIA being all over the financial news, technology did not lead the S&P sectors for the month. For most of 2023, Communication Services and Technology led the market with outsized returns and are still the year-to-date sector leaders returning over 10% each. But in February the top performing sectors were Consumer Discretionary returning 8.7%, Industrials returning 7.2%, and Materials returning 6.5%. Real Estate remains the lagging sector year-to-date and even though it was positive for February it is still negative by 2.3% so far in 2024.

The Magnificent 7 stocks were the leaders of the market in 2023 and all posted outsized returns last year to help drive the S&P 500 higher. So far in 2024 they have seemed to diverge from each other with NVIDIA and META up over 25% in February and Apple and Google both negative by over 1% for the month. Tesla was up almost 8% in February but is still negative by 18.8% year-to-date. With Mid-Cap Growth and then also Consumer Discretionary, Industrials, and Materials leading the market, the rally has broadened out past the Magnificent 7 and is a positive sign of a healthier overall market.

The stock market rally in February did sputter temporarily when some hotter than expected inflation numbers were released on the 13^th of the month. Economists had predicted a Consumer Price Index (CPI) reading of 2.9% but the number was reported at 3.1%. However, this hotter than expected number along with Federal Reserve Chairman Jerome Powell downplaying a possible rate cut in March helped align the market and the Fed on what to expect this year for rate cuts. The market is no longer pricing in 6-7 rate cuts but more likely 3-4, which is much more in line with the meeting minutes released by the Federal Reserve Open Market Committee. The market was able to continue its rally after this slight hiccup and there was good news on the inflation front later in the month when the Federal Reserve’s preferred inflation metric (Core PCE) was released showing it fell to 2.85%, its lowest reading since March of 2021.

Market sentiment is continuing to shift to become more bullish, which is not abnormal given the recent market rally. One interesting statistic is that in the past when the market has been positive in November, December, January and February, research by Ryan Detrick shows this has happened 14 times since 1950 and when it does, the market ends the year positive 100% of the time and the average return is above 21%. Ryan’s research also shows that when January and February are positive the average return for the S&P 500 is 19.9% for the year. This is by no means a guarantee of what will happen and the wrinkle for 2024 is that this is a presidential election year. Historically this should be the most difficult environment for stocks in an election year (late February into the second quarter) but the good thing is that stocks usually bottom in the second quarter during an election year and often move higher from there. Right now, the market is not following historical trends and we are in an uptrend at this point.

Maybe the takeaway from this newsletter is what you may expect to happen in the market based on what has happened in the past doesn’t always yield the same result in the present. As we always say, you need to build a portfolio with your individual risk tolerance and goals in mind that you will feel comfortable owning during bull and bear markets.