Hello all - we hope you had a nice February.
Stocks opened the month higher, only to turn around and move lower and close in the red. For the month, the Dow lost 4.2%, the S&P 500 fell 2.6%, and the Nasdaq, which has a higher concentration of tech stocks, also saw a decline of 2.6%.
Stocks opened the month higher, only to turn around and move lower and close in the red. For the month, the Dow lost 4.2%, the S&P 500 fell 2.6%, and the Nasdaq, which has a higher concentration of tech stocks, also saw a decline of 2.6%.
Here’s a look at how the markets moved this month:
And here’s a look at the performance of the different sectors for February:
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Economic reports seemed to have the most impact on markets this month. Reports showing good news or high inflation were met with lower markets. Remember, the better the news, the more likely the Fed is to keep pulling back on its stimulus. For a market addicted to stimulus, good news is bad news.
We’ll get to the economic data later. For now, we’ll start with corporate earnings.
We’ll get to the economic data later. For now, we’ll start with corporate earnings.
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CORPORATE EARNINGS
We’ve received nearly all the corporate earnings for the fourth quarter. The overall result was a decline in earnings of nearly 5%, larger than was expected.
Companies have seen decent revenue (which is the amount of money they brought in). However, they’ve made more money because they’ve raised their prices and don’t seem to be selling as many products.
This isn’t a positive trend. Many companies warned that sales were slowing and they can’t raise prices much more, so their earnings are likely to be weaker later this year. This could weigh on the markets in the future.
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THE FED
The Fed held another policy meeting this month where they raised interest rates by 0.25%. This is a slowdown from the prior increases, but as you can see in the chart below, it’s still been a remarkable rise in borrowing costs.
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INFLATION
The Fed wants inflation to come down and is closely watching these reports. Unfortunately, the inflation numbers released this month suggest inflation is picking up again. Several Fed members suggested the Fed should raise interest rates even more than many investors expected and stocks fell on the news.
We’ll start with a look at inflation from an annual perspective. As you can see, inflation looks like its trending lower.
However, when you look at inflation month-by-month, inflation is clearly not slowing down. Additionally, last month saw a negative inflation number and that was encouraging. Unfortunately, that number was revised higher this month. That means we’ve only seen one month where prices were lower in the last three years – and that was only a very slight decline.
The “core” measurement, which excludes food and energy, continues to see solid monthly increase in inflation.
Inflation at the business level, or PPI, showed a sharp rise last month, too.
Finally, another measurement of inflation the Fed likes to look at is the PCE inflation index. We won’t get into the why’s and how’s of this measurement, but we can just look at the chart below and see that it continues to rise.
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ECONOMY
We continue to see signs the economy is slowing, although there were a couple bright spots this month.
We’ll start with an indicator we brought up last month - the leading economic indicator index. It combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).
This index has been lower for 10-straight months. That has happened only three other times, and each of these were in recessions.
A bright spot this month was employment. The monthly jobs report showed a solid increase in hiring. Of course, good news is bad news for the market and stocks sold off as a result.
The manufacturing part of our economy stands firmly in a contraction, but the service part of our economy showed a surprising rebound.
Retail sales rebounded, too, and posted a solid gain.
Durable goods (these are items with a longer life, like a phone or refrigerator) saw a sharp decline from the previous month.
Consumer confidence had been trending higher since the middle of 2022, but had another decline last month.
Confidence at small businesses saw a slight tick higher from last month.
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Where does the market go from here?
In the short term, stocks look to be on the cheaper side of the range they’ve been trading in. That doesn’t mean they can’t keep going lower, but we think the odds of an increase are higher than a decrease. We'd like to see a little buying, first, before we dip our toes in, though.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
