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February saw stocks slide lower after posting solid gains to begin the year. Each of the benchmark indexes listed here retreated from their January totals, with the Dow falling the furthest, followed by the Global Dow, the S&P 500, the Russell 2000, and the Nasdaq. Investors saw hope in January that inflation may be waning. However, February data showed inflationary pressures reversed course and expanded. The Federal Reserve has consistently maintained that it seeks to achieve maximum employment and hold inflation at the rate of 2.0%. So far in 2023, job growth has been solid, with more than 500,000 new hires, while the Consumer Price Index (+0.5%) and the Personal Consumption Expenditures Price Index (+0.6%) revealed increasing inflationary pressures over the previous month. Inflation has risen 5.4% since January 2022, according to the latest PCE price index. With evidence that the economy can withstand further tightening, the Federal Reserve is likely to continue to drive interest rates higher and for a longer period of time. This, coupled with lagging corporate earnings and the Russia/Ukraine war, which is entering its second year, has caused some investors to move from risk.
Several market sectors posted solid gains in February, while others lagged. Consumer discretionary and information technology increased by about 16.9% and 7.2%, respectively. On the other hand, health care (-4.5%), utilities (-6.3%), and energy (-3.7%) lost ground.
Manufacturing activity changed little in January from the previous month. Durable goods orders declined in January after climbing in December. The purchasing managers' index declined in January as weak customer demand resulted in subdued sales. Meanwhile, input costs and output charges rose at increased rates as price pressures strengthened again.
Corporate earnings in the fourth quarter were generally subpar. Roughly half of the S&P 500 companies have reported above-estimated earnings thus far in the fourth quarter. That is below both the five-year and 10-year averages. It is possible that fourth-quarter earnings for S&P 500 companies could decline, which would mark the first time the index has reported a year-over-year decrease in earnings since the third quarter of 2020.
Bond prices fell in February, driving yields higher. Ten year Treasury yields rose 39 basis points from January. During the last day of February, the yield hit 3.98%, reaching its highest level since November 2022. The 2-year Treasury yield ended the month at 4.82%. The dollar advanced against a basket of world currencies. Gold prices fell nearly $110.00 per ounce in February.
Crude oil prices declined in February for the fourth straight month. Oil prices have fallen due to an unusually warm winter in the United States and Europe. In addition, rising inflation and interest rates have pushed against oil prices, while driving the dollar higher. The retail price of regular gasoline was $3.379 per gallon on February 20, $0.110 less than January's price and $0.151 lower than a year ago.
|MARKET/INDEX||2022 CLOSE||PRIOR MONTH||AS OF 02/28||MONTHLY CHANGE||YTD CHANGE|
|FED. FUNDS||4.25%-4.50%||4.25%-4.50%||4.50%-4.75%||25 bps||25 bps|
|10-YEAR TREASURIES||3.87%||3.52%||3.91%||39 bps||4 bps|
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
Eye on the Month Ahead
Inflation accelerated in February after showing signs of slowing in the previous month. Investors hope March data will show price pressures begin to decelerate again. Rising inflation and strong job growth support more rate hikes from the Federal Reserve when it next meets in late March.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); http://www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
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