“Good investors gather information, put that information into current and historical context, then make sound decisions.”
After two very productive weeks for equity markets, February was left to its own devices. In just four days the month that is already notorious for its corrections had unraveled the S&P 500 Index back to mid-January levels. Because of the surprisingly poor performance of equities in December, equity markets have taken on a bouncy appearance over the last four months without much progress. The S&P 500 closed at 5956 yesterday. It closed at 5929 on November 6, 2024. That’s less than one-half of one percent higher over almost four months. This four-month long trading range could support an impressive advance…once it breaks out. For the time being, the S&P 500 Index is in the midst of a short-term mild correction, supported by an intermediate-term trading range, in the context of a long-term Bull Market for equities.
As usual, this correction has been gentler/kinder on large cap equities than small cap equities. The large cap S&P 500 Index declined -3.8% in the current correction and is now down -1.3% MTD, while the S&P 500 Equal Weight Index declined -2.18% and is now down -0.61% MTD. The S&P 600 Small Cap Index declined -7.0% in its longer-running current correction and is now down -5.0% MTD. Also as usual, the sectors which made the strongest runs over the Nov-Dec-Jan period were the most susceptible to February profit-taking. MTD, the S&P Internet Industry Index is down -9.06%, the S&P Consumer Discretionary Index is down -8.66%, and the S&P Semiconductors Index is down -6.24%. Finally, as usual, those sectors which had been market laggards the past four months took short-term leadership positions. Enter the Dow Jones Utilities Average up +1.69% MTD, and the Dow Jones US Real Estate Index up +3.23% MTD.
Trading range markets often seem particularly susceptible to the daily news, which gets far more credit than it deserves. It is actually quite ironic because of all the variables that go into pricing securities with accuracy. I daresay that ‘what is reported on the daily news’ is not even listed in any of their pricing service models. And yet to continue the irony, an algo-trading program can still pull the trigger on a massive sell program based on a single word spoken by a single person in a daily news report. It should be no surprise that market volatility has increased significantly since the elections in November. Our President has a history of using devices such as distraction and misdirection, the more outrageous the better, in his operations and negotiations. News agencies are currently eating up every word, adding their own brand of spice, and spreading it wherever it will aggravate the most people (my personal opinion). During his first term, they soon tired of that and moved on. In the meantime, we are going to see how markets react as the news wires share their latest pearls about did you hear what he said now and how the sky is falling, the sky is falling.
Meanwhile, all of the bond indexes that we follow are in positive territory for February and YTD. The U.S. Aggregate Bond Index (AGG) had been in a downtrend for the past six months. The February correction in equities sparked enough of a buying spree in bonds that they broke up through that downtrend, tested the breakout positively, then drove higher. The AGG is up +1.71% MTD and up +2.25% YTD. That’s very good news for bond investors who have heard the brakes screeching on further rate cuts from the Federal Reserve. This is actually an opportunity for the Federal Reserve to regain control of the narrative on inflation. The expectation for further rate cuts the rest of 2025 is just for a quarter point in July, then maybe nothing more. That’s pretty low expectations. The Federal Reserve should be able to posture within their dot plots with little pressure.
February is nobody’s favorite month, but it’s wedged right between two months that we like very much. As a result, professional investors have learned to tolerate it and engage in positioning and posturing for the rest of the upcoming year. After all, it’s the shortest month and we’re in a Bull Market.
Edward D. Foy, Manager, SELECTOR® Money Management, Chief Investment Officer, Foy Financial Services, Inc.
© 2025 Edward D. Foy. [email protected], www.foyfinancial.com.
Sources: StockCharts, Morningstar, Stock Trader’s Almanac.