U.S. Markets
Stocks notched solid gains last month as upbeat corporate reports and investor enthusiasm surrounding artificial intelligence overshadowed the Fed’s next move with interest rates.
The Dow Jones Industrial Average advanced by 2.22 percent, while the Standard & Poor’s 500 Index gained 5.17 percent. The Nasdaq Composite led, picking up by 6.12 percent.1
No Hurry
Early in the month, Federal Chairman Powell stated that there was no hurry to change the Fed’s interest rate policy. In the past, talk of interest rates remaining “higher for longer” had the potential to cause market volatility. This time, however, investors looked past Powell’s update and turned their attention to Q4 corporate reports.2
The Influence of AI
By mid-month, earnings news dominated the headlines as investors focused on any company that offered an update on artificial intelligence. Investors’ obsession with AI reached a fever pitch when the leading maker of AI-friendly semiconductors released its Q4 update.3
Nvidia’s market cap rose by $277 billion on the upbeat news, pushing it to a valuation of $2 trillion. To put that into perspective, Nvidia’s market cap is now roughly the same size as Canada’s economy. Its 16 percent gain following the company’s earnings report was the largest one-day market cap increase experienced by any U.S. company.3
Remember that the companies mentioned are discussed for illustrative purposes only. This should not be considered a solicitation for the purchase or sale of any company.
Q4 Corporate Updates
Corporate reports helped the market’s month-long rally. At last check, 73 percent of Standard & Poor’s 500 companies had reported actual Q4 earnings per share above estimated earnings per share. Wall Street saw this as an encouraging sign, leading to the fourth straight monthly gain in major averages.4
Shift in Leadership?
Since the current rally began in October 2023, mega-cap technology stocks have led the way. However, there are signs that leadership may be broadening out. Last month, the consumer discretionary sector posted the largest gain, while the tech sector finished in the middle of the pack.5
Sector Scorecard
Returns for all major sectors of the S&P 500 Index were in the green for the month. In an about-face from January, Industrials (+7.18 percent) and Consumer Discretionary (+7.89 percent) led, along with Materials (+6.51 percent). Technology (+4.70 percent) and Communications Services (+4.59 percent) were among the most modest gainers for the month, with Consumer Staples (+2.10 percent) and Utilities (+1.06 percent) finishing last but still in the positive.6
What Investors May Be Talking About in March
Investor attention is expected to turn to the Fed’s two-day meeting, which ends on March 20th.
Back in December 2023, the Fed indicated that as many as three rate cuts were possible this year. However, during his recent February update, Federal Chairman Powell somewhat damped enthusiasm by stating that the Fed is continuing to look for further evidence that inflation is heading toward its 2 percent target.
January’s 2024 inflation reports came in a bit hotter than expected, seeming to support Powell’s position. The Fed may be reluctant to adjust rates if inflation stubbornly remains above the Fed’s target.7
Prior to the Fed’s meeting, February’s update on consumer prices will be released on March 12. Market watchers will be looking for clues in the report to anticipate the Fed’s next move.
World Markets
The MSCI EAFE Index rose 1.68 percent in February as a powerful move in Japan’s Nikkei 225 Index helped pace gains.8
In Europe, stocks were mixed. Italy picked up 5.97 percent and Germany tacked on 4.58. Meanwhile France and Spain posted losses for the month.9
The Pacific Rim markets were higher, paced by solid gains in China’s Hang Seng index as well as Korea and Japan.
With the help of positive corporate earnings and governance reforms, Japan’s Nikkei Index broke through its “iron ceiling”—the previous record high level set in 1989. It had become a notoriously significant psychological barrier over the past 3½ decades of economic stagnation. Japan has gained 17 percent year-to-date.10,11
Indicators
Gross Domestic Product (GDP)
The U.S. economy grew by a revised annualized rate of 3.2 percent in Q4 2023, slightly down from the initial estimate of 3.3 percent, mainly due to downgraded inventory investment. Consumer spending and government investment were revised upward, however.12
Employment
Employers added 353,000 jobs in January, nearly double the 185,000 jobs expected. January’s increase was higher than December’s revised job gains of 333,000. The unemployment rate remained at 3.7 percent for the second month in a row, while average hourly earnings increased by 0.6 percent—double the estimate for January.13
Retail Sales
Consumer spending fell by 0.8 percent in January, worse than the anticipated 0.3 percent decline in sales. This number contrasts with December’s 0.6 percent rise (a positive surprise), which came off a robust holiday shopping season. Year over year, retail sales declined by 0.2 percent.14
Industrial Production
Industrial output fell by 0.1 percent in January, adversely impacted by cold weather across the country. Economists expected a 0.2 percent increase.15
Housing
Housing starts fell 14.8 percent in January due to cold weather.16
Existing home sales rose by 3.1 percent in January, benefiting from a slight tick down in mortgage rates in November and December. The median sales price was up by 5.1 percent year over year.17
Consumer Price Index (CPI)
Consumer prices rose by 0.3 percent in January and were up by 3.1 percent for the 12 months. This was cooler than December’s year-over-year gain of 3.4 percent but warmer than the 2.9 percent gain expected by economists. Core prices, which exclude food and energy, increased by 0.4 percent in January, up by 3.9 percent year over year.18
Durable Goods Orders
Orders of manufactured goods designed to last three years or longer fell 6.1 percent in January. Orders were flat in December.19
The Fed
While there were no FOMC meetings in February, markets digested comments from the Federal Reserve’s two-day meeting that ended on January 31.
The Fed’s policy language, which was released after the meeting, indicated a subtle shift from considering rate cuts to proposing that such cuts could be possible unless inflation becomes a concern. The Fed’s funds rate remains within the 5.25–5.50 percent target range.20
1. WSJ.com, February 29, 2024
2. Reuters.om, February 4, 2024
3. MarketWatch.com, February 22, 2024
4. Advantage.Factset.com, February 29, 2024
5. MarketWatch.com, February 29, 2024
6. SectorSPDR.com, February 29, 2024
7. WSJ.com, February 13, 2024
8. MSCI.com, February 29, 2024
9. MSCI.com,February 29, 2024
10. MSCI.com, February 29, 2024
11. CNBC.com, February 22, 2024
12. Reuters.com, February 28, 2024
13. CNBC.com, February 2, 2024
14. WSJ.com, February 16, 2024
15. WSJ.com, February 16, 2024
16. Census.gov, February 16, 2024
17. CNBC.com, February 22, 2024
18. CNBC.com, February 12, 2024
19. Reuters.com, February 26, 2024
20. CNBC.com, February 21, 2024