February 2023 in Review
by Daniel Zeigler, CFP®, CMFC®, Senior Portfolio Manager
Welcome to the monthly market update from Midland Wealth Management. I am Dan Zeigler, Senior Portfolio Manager. Today I just wanted to spend a few minutes to give you an update on the markets for the month of February.
Most indexes were unfortunately in the red for the month of February, after charging higher to kick off 2023. Stocks gave back gains for the year as hotter-than-expected economic releases, including data on the labor market and consumer spending, spurred investors to recalibrate their expectations for inflation and higher interest rates for longer. The Dow Jones dropped 4.2% in February and is down about 1.5% for the year. The S&P 500 declined 2.6% and the Nasdaq was down 1.1% for the month. The S&P 500 has a gain of about 3.4% for the year and the Nasdaq is still up 9.4% for the year.
The market is now expecting the Federal Reserve to increase their Fed Funds rate three more times in 2023, albeit at a slower pace of about 0.25% at each meeting. Treasury yields rose higher in February as the 10-year U.S. Treasury Note has advanced back towards 4%. The Bloomberg U.S. Aggregate Bond Index was down about 2.5% for the month and is still slightly higher for the year.
Overall, 4th quarter corporate earnings have been in line with expectations, however, investors have been more focused on the company’s outlook. Recently several large retailers have guided their sales growth lower than expected. The market is expecting earnings to decline for the first half of 2023; however, they expect earnings growth to return in the second half of the year. The expectations are for earnings to grow by 2.3% for the entire year.
We also received the first revision of 4th quarter GDP, which showed the economy grew a touch slower at 2.7% vs 2.9%, which was largely because consumers cut back on some spending. Consumer spending, the main engine of the economy, grew at 1.4% annually, compared to 2.1% previously announced.
U.S. home prices logged a monthly decline in December for the sixth-straight month. The Case-Shiller [Home Price] Index fell 0.8% in December compared to the previous month. Higher mortgage rates, which are highly correlated to the 10-year Treasury, are leading to some of the softness in the housing market. Home purchase applications fell to a 28-year low as mortgage rates jumped in February and the 30-year fixed rate is now hovering around 6.5%.
The markets will be continuing to pay attention to the job market, inflation data, [and] Fed speak before the March 22nd Fed meeting. The S&P 500 appears to be in a trading range as a stock market recovery may depend on good behavior from interest rates, Fed outlook, and continued progress of inflation coming down.
As always, if you have any questions or want to speak to someone, please do not hesitate to give us a call.