Powered by positive earnings surprises and solid economic data, the S&P 500 closed above 5,000 for the first time on February 9. The S&P 500 closed the month at 5,096, a new all-time high. The following returns for February are impressive additions to January's, as seen in the YTD (year-to-date) column. (1)
Index | February | YTD |
|---|---|---|
S&P 500 | 5.30% | 7.10% |
Nasdaq | 6.20% | 7.30% |
DJIA | 2.50% | 3.80% |
While the S&P 500 has been consistently hitting all-time highs throughout the year, the Nasdaq Composite finally joined the club in closing at a new all-time high on Thursday. That marked the first all-time high for the index since 11/19/21, or 569 trading days ago.
The S&P 500’s February gain extended the current streak of gains to four months. Winning streaks of four or more months aren’t particularly extreme relative to history (there was a longer streak as recently as last July), and the current streak is now the 50th in the post-WWII period. While there may be a tendency to think that four straight positive months would make the market susceptible to subpar returns going forward, that hasn’t played out in the past. (3)
Even more interesting is that of the eight prior 4-month winning streaks that began in November, the S&P 500 was higher one week, three months, and one year later every single time. While the S&P 500 wasn’t a perfect eight for eight in the one and six-month timeframes, seven out of eight isn’t bad.
(2)
One of the seemingly largest disconnects in the market since the start of the year has been the market’s ability to keep rallying even as the number of expected interest rate cuts between now and the end of the year has practically been cut in half. Earlier this year, markets were pricing in just under seven rate cuts, but the number is below four after briefly dropping to three last week. As seen below, the recent divergence begs to differ for anyone operating under the premise that it’s been nothing but a Fed-fueled rally.
(2)
If the last few months were nothing but a rally driven by the Fed, then the divergence between stocks and the number of rate cuts makes no sense. But what if it’s not, and we’re just in a bull market? Is the rally starting last November driven by AI (artificial intelligence) company stocks? It is too early to tell, but I will continue to report on AI as the year unfolds.
February Portfolio Changes
At the beginning of February, I was concerned with the mega-cap companies producing a large portion of the S&P 500 return. We considered moving a portion of EQWL, an equal-weighted S&P 100 ETF (exchange-traded fund), to SPY, an ETF weighted equally to the S&P 500 index. This change was not made. While two mega-cap stocks, META $502.11, previously known as Facebook, and NVDA $826.56 (Nvidia), had excellent earnings reports, our monthly holdings performed well.
March Portfolio Possibilities
With 95% of fourth-quarter earnings reported, our focus will return to economic data and the Federal Reserve. We are not considering any changes to our holdings when writing this review (3/2/2024).
(1) www.sofi.com
(2) Chart by Bespoke
(3) Bespoke, March 1, 2024
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