February Market Commentary

Market Commentary

US stocks bounced back in February on optimism over the economy and additional fiscal stimulus, but ended on a down note as interest rates climbed to end the month.  The House passed the $1.9 trillion stimulus relief bill, and it is headed to the Senate.  The stimulus would provide significant support for the economy after household income climbed 10% in January as a result of the December stimulus bill.  With 96% of S&P 500 companies reporting earnings to date, earnings are on track to rise by 3.6% in the fourth quarter, when a decline of 11% was expected.  In addition, new COVID-19 cases plummeted over the month with the average seven day rate at its lowest level since October.  Economic news was generally positive over the month.  The January jobs reports showed the economy moved back to adding jobs and the unemployment rate fell to 6.3%.  In addition, initial jobless claims fell over the month and hit their lowest level since November. Service sector activity rebounded more than expected in January and consumer confidence rose in February for a second straight month.  Retail spending rose 5.3%, the most in seven months, and manufacturing activity continued to expand.

Foreign stocks climbed in February on optimism over global economic growth.  To date, the impact of targeted lockdowns in Europe seems less severe than those employed earlier in the pandemic.  Manufacturing activity improved and business and consumer sentiment picked up in the region.  OPEC issued a statement asking member countries to maintain production cuts.  Oil prices jumped 18% to $61.50 a barrel over the month.  India announced plans to boost economic growth and healthcare spending. Global central banks continued to be accommodative with the latest example being South Korea.  The country elected to keep its benchmark interest rate at a historic low.  Emerging markets trailed developed markets over the month, but outpaced developed markets over the trailing twelve months.

Bonds fell over the month as interest rates moved sharply higher on optimism over the economic recovery.  Meeting minutes from the Fed’s January meeting showed officials agreed to continue to hold the Fed Funds Rate near zero and to maintain the current level of bond buying.  While they thought that there may be an increase in inflation, they didn’t believe it would be long lasting.  In Congressional testimony, Fed Chair Powell reiterated the Fed’s plans to keep the Fed Funds rate low for the foreseeable future as “the economy is a long way from our employment and inflation goals.”  The 10-year Treasury yield rose to over 1.5% before settling at 1.44%, its highest level since February of last year.  The benchmark rate has climbed from 0.93% to start the year.  Over the month agency bonds were the top performing sector, while over the trailing year, credit bonds led the way.  Longer term bonds trailed shorter term bonds in February and over the last twelve months.