At-A-Glance

1. Despite February losses, the S&P 500 is still up 11.74% from its Oct 12 bear market low.
2. Amongst the three major U.S. indices, the Nasdaq Composite fell the least (-1.01%) and is up 9.61% YTD. The tech-heavy index is still up 10.38% from the Oct 12 bear market low.
3. The Dow Jones Industrial Average fell the most, shedding 1,429 points (-3.94%). The Dow 30 index is down 1.13% YTD but remains positive from the Oct 12 bear market low(+12.74%).
4. The Bloomberg blended index of long-term U.S. government and corporate bonds that performed best in January (+6.59%) became February’s worst performer, giving back most of its gains (-4.96%).
5. The Bloomberg Commodity Index fell 4.70% to extend its YTD loss to 5.17%. In highlights, gold futures tumbled 5.5% last month, ending at $1,836 per ounce. U.S. WTI crude oil prices fell 2.3% ending at $77.05/barrel.

Following solid January performance, all three major U.S. equity indices whimpered lower in February, posting their second negative month since November. Essentially, the disinflationary optimism in January that eased bond yields and drove up global equity markets, reversed in February as incoming economic data showed world economies were more resilient than previously believed. This after fresh consumer and producer prices ran hotter than expected together with strong retail sales, a surge in payroll growth and fewer jobless claims.

Investor concern is less about recession fears but now centers on still stubbornly elevated inflation that prompted increased hawkish prospects for higher interest rates that will likely stay in place for longer. As widely expected, the Federal Reserve raised rates by 0.25% on the first day in February to a new range of 4.50%-4.75%. Then as hawkish-prompting economic data rolled in, markets responded by re-pricing the expected 2023 terminal (peak) Fed Funds rate toward 5.4%, up by about 0.60% since the end of January.

Most recently, consumer confidence worsened during the month. The Conference Board’s closely watched Consumer Confidence Index unexpectedly slumped to 102.8 in February from 106.0 the month prior and was widely below the consensus projection for 108.5. The drop in February consumer confidence aligns with weakening business confidence as referenced in numerous earnings-related outlooks.

All equity styles of companies posted negative returns in February but held onto gains on a year-to-date (YTD) basis. Notably, all small- and most mid-cap styles outperformed large-caps with smaller February losses and larger YTD gains. Growth overwhelmingly outperformed Value for all styles in both time periods. Recall that growth is more sensitive to rising interest rates (as future expected profits decline in present value calculations) so continuing growth outperformance is a telling sign of still hopeful market expectations for interest rates to reach its terminal (peak) level, albeit later in 2023 than previously thought.

Top & Bottom Performers

Data provided by Cash Dollar and Associates.