February Ended Strong for Equity Markets

The month of January ended with a message from the Federal Reserve Board Chairman that no decrease in short term interest rates should be expected for several more months.  He issued a strong statement that the target rate for inflation remains 2% and while we are seeing progress in the fight against inflation, it is premature to consider a decrease in interest rates at this time.  Immediately upon hearing the Chairman’s message on the afternoon of January 31st, investors sold and in the final two hours of trading the S&P 500 Index gave back half of its January gains.  

After the initial knee-jerk reaction, investors brushed off the disappointing news and proved able to adjust their interest rate expectations and move forward.   By February 2nd all the losses of the 31st were recovered and then some.  A week later on February 9th, the S&P 500 Index closed over 5,000 points for the very first time.  

It was not all smooth sailing in February in spite of that impressive milestone on the S&P 500 Index.  On February 13th before the market opened the CPI numbers were released for January.  The December year-over-year inflation rate was 3.4% and it was broadly anticipated that in January inflation would slow to 2.9% when compared to January one year ago.   The 12-month CPI for January was 3.1%.   Expectations were not met, and sellers controlled the market that day.

The major indexes gapped down at the open and were negative for the day, but they did close off the day’s low.  Investors were concerned that with inflation running hotter than expected any future interest rate cuts would be postponed even longer.  

There was not a serious decline in February but there were choppy periods that reflected investor concerns.  The market traded back and forth between the 13th and the 21st until strong earnings reports from some tech giants brought out buyers on February 22nd.  The S&P 500 soared past 5,000 points to a new high.  

In 2024 investors are laser-focused on the direction of short-term interest rates.   Expectations have been adjusted to rate cuts starting in the second half of the year.  As we move into the third quarter, we expect politics and the Presidential election will attract more attention.  Presidential election years are historically positive for the stock market.   

Investors managed to stay positive even with a couple of disappointments in February.  The bull market is still in control.  February ended strong with the major indexes posting all-time monthly closing highs on the last day of the month.  

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC. This represents our views at the time of this writing, and it is subject to change. It is not intended to be personal investment advice. If you would like to discuss your own account, please don’t hesitate to call us.