Hello all - we hope you had a great February.
The month was another good one for stocks, with both the S&P and Nasdaq closing at record highs. For February, the Dow rose 2.2%, the S&P 500 gained 5.1%, and the Nasdaq, which has a higher concentration of tech stocks, added a solid 6.1%.
The month was another good one for stocks, with both the S&P and Nasdaq closing at record highs. For February, the Dow rose 2.2%, the S&P 500 gained 5.1%, and the Nasdaq, which has a higher concentration of tech stocks, added a solid 6.1%.
Here’s a look at how the markets moved this month:
Here’s a look at how the different sectors performed this month.
The market has seen a steady rise since November of 2023. Interestingly, it has traded in a narrow, upward sloping range as you can see in the image below.
We’ve seen the markets trade in a range like this often in recent years as investors focus on the central banks and their stimulus program. We’re seeing a calm, positive market again now as investors bet on the Fed lowering interest rates again in the coming months.
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NVIDIA
We don’t usually talk much about individual stocks in these commentaries, but this month was all about one stock. Nvidia.
Nvidia is a tech company that makes special computer chips for AI programs. The AI hype has given new legs to this market and Nvidia is by far the leader in this field. They are so good at what they do that Microsoft spends one-third of their capex (“capital expenditures” are costs that will be used to improve a company's performance in the future) on Nvidia products.
Anyway, investors have been looking for reassurance that the AI-driven rally would continue. Earnings reported by Nvidia this month were extremely strong and that gave investors the reassurance they were looking for. Stocks continued their rise.
Here’s a look at the remarkable rise of Nvidia stock over the past five years:
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FED
There wasn’t a lot of news out of the Fed this month (which was nice). Early in the month they released the minutes from their latest meeting, which suggested that while they may lower rates this year. However, it probably won’t be as much as investors expect.
Investors continue to expect a big cut in rates from the Fed in the coming months. From everything we’ve seen and heard, we don’t think the cuts will be as soon or as big as investors think. This could set the market up for more disappointment as rate cuts never materialize.
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INFLATION
Inflation is a key economic metric the Fed follows. It has been trending lower over the last two years, which is why investors believe the Fed will start lowering rates soon.
However, the inflation level seems to have stalled over the last several months.
While you can see a decline in inflation in the chart above, that’s looking at it from an annual perspective. If you were to look at inflation month-by-month, prices continue to rise every month.
Excluding energy and food, which economists call the “core” measurement, inflation is still solidly rising every month.
The PPI, which is the inflation at the business level before they pass on the price increases to us, showed a strong increase last month.
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OTHER ECONOMIC DATA
Economic data released this month was mixed. Overall, the economy still looks healthy, but there are pockets of concern.
First, we’ll look at the leading economic indicators, which we’ve talked about for months. This index 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 22-straight months now. It has never gone this low without a recession following, although this is something we’ve been saying for many months and a recession still hasn’t come.
Here are the various indicators used in the leading indicator index:
The manufacturing sector of our economy still appears to be contracting (a number below 50 indicates contraction), though it is improving. The services sector showed an improvement, as well.
Retail sales turned lower last month:
Durable goods (these are items with a longer life, like a phone or refrigerator) turned lower, but this was mostly due to large aircraft orders skewing the data.
Consumer confidence dipped last month:
Small business optimism was slightly lower, too:
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Where does the market go from here?
Our indicators show that the market remains very expensive here. But it remains resilient, too. We wouldn’t be sellers at this time, but aren’t excited about putting new money in, either.
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.
