A Surprisingly Good Month

“Good investors gather information, put that information into current and historical context, then make sound decisions.”

The month of February has been quite positive for most equity indexes. Large cap equity indexes were the first to break higher and are now on a four-month winning streak. February’s very strong performance has surpassed January’s solid start. Large cap equity indexes are back in leadership positions. Mid cap equity indexes have also had an impressive rally in February, after slipping slightly in January, and are back in positive territory for the year. Meanwhile, small cap equity indexes remain in ‘flag formations,’ or trading ranges, after their rallies in November and December.

From a sector perspective, participation in this equity rally has been broad. Consumer discretionary, industrials, technology and biotechnology sectors have been particularly strong. Above average gains are also seen in internet, health care, materials, telecommunication services, semiconductors, and software sectors. Sectors in negative territory for February, and coincidentally for the year, include utilities, metals and mining, telecommunications, and banks.  A historically quiet month for performance has become an unusually strong one.

Bond markets have mostly been trading lower in February. The Bloomberg US Aggregate Bond Index is down -1.63% MTD and is down -1.91% YTD. The Bloomberg Municipal Bond Index is down -0.02% MTD and is -0.53% YTD. The best performances have been seen in the Bloomberg 1-3 Year T-bill Index, up +0.38% MTD and up +0.81% YTD, and in the Bloomberg US Corporate High Yield Bond Index, up +0.30% MTD and up +0.29% YTD. All eyes are on the Federal Reserve as they negotiate the transition from hiking rates to cutting rates. It is generally anticipated that their first interest cuts will be announced this summer.

The January Barometer came in decidedly positive after a strong finish for the S&P 500 Index. The January Barometer was developed in 1972 and when applied from 1950 to the present it has an 83.6% accuracy ratio insofar as predicting when the S&P 500 Index is positive for the year after a positive January. Of course, equity markets blew into 2024 with strong tailwinds from the November – December rally. Another positive inference is this being an election year, which historically has been positive for equities. In the past, equity prices have also risen in between the last interest rate hike and the first interest rate cut. 

An economic recession has been in the weather forecast for months now.  I have heard rumors of a soft, mild recession managed delicately by the Federal Reserve. There is also discussion of rolling recessions, and even the possibility that we had one and didn’t know it. Either way it has become old news. One of the most remarkable aspects of investor psychology is the ability to discount old news. Consider the items which used to drive markets higher and lower but no longer. First and foremost, we have the Ukraine – Russia War, two years old, which only makes the news when it’s about the money. Then we have the Israel – Gaza conflict, still unresolved, also still costing money. These are real human conflicts, not just cyclical economic events, but they have lost its impact on financial markets.

February has been a very surprising month on another count. In Nebraska, it has been surprisingly warm! After a bitter January that was brutal in terms of both the cold and the wind, we have been treated to Spring-like temperatures. We recently recorded the highest daily temperature ever, and the month should also be one of the warmest on record. The S&P 500 Index and the NASDAQ Composite Index have joined the party with all-time record highs in February. But rest assured, the weather can turn on a dime in Nebraska, just as financial markets love to fluctuate.

Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.

© 2024 Edward D. Foy.  [email protected], www.foyfinancial.com.

Sources: StockCharts, Morningstar, Stock Trader’s Almanac.