February 2024 MARKET COMMENTARY: S&P 500 Surges and Economic Fundamentals Waver
Ethan Pollard | March 05 2024
Equity markets continued their strong start to the year in February, with the S&P 500 logging its fourth consecutive monthly gain on the back of blowout earnings from chip maker and AI leader Nvidia. The blue chip index gained 5.3% in February and is up 7% year-to-date.
Smaller company stocks made up some ground in February, rallying +5.7% this month for a +1.5% gain so far this year.
Overseas stocks continue to lag domestic competitors, with the MSCI ACWI ex-US index adding just +2.4% in February for a +1.3% YTD return.
Within fixed income, yields rose as inflation re-emerged in the January data, with the ten-year ending the month at 4.25%. Bond prices fell as a result, with the Bloomberg US Aggregate Bond Index losing -1.4% in February for a -1.7% full year return.
Commodity prices pulled back -1.5% in February, though digital assets soared, led by a +44% surge in Bitcoin prices as ETF adoption continues to gain steam.
Our data driven Three Dials readings were once again unchanged in February, as we outline below:
- Market Sentiment and Momentum: (Positive ➕)
According to Bespoke Investment Group, the S&P posted five consecutive weekly gains of at least 1% between January 8th and February 9th, the first such streak since 2016.
Despite a brief pause mid-month, equities continued their rally into month-end, leaving our Momentum Dial in a Positive position.
- Economic Fundamentals: (Negative ❌)
After showing signs of life last month, new manufacturing orders contracted in February, suggesting that the persistent high interest rate environment continues to provide a headwind to future economic activity.
With the Fed’s first rate cut potentially on hold until June, our Economic Dial remains in a Negative position for now.
- Valuation: (Negative ❌)
While last year’s tech rally relied primarily on multiple expansion, so far the story of 2024 has been backed by fairly strong earnings growth. That said, high discount rates leave P/E ratios stretched, and as such our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position through the month of February, with two dials Negative and one dial Positive.
Sources: Morningstar, Bitcoin Historical Data
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