US stocks plunged to start February, but rebounded to end the month to regain much of the decline suffered. Congressional leaders were able to strike a 2 year spending deal averting another government shutdown. Corporate results have outpaced expectations with 94% of the S&P500 firms reporting to date, 76% have topped earnings expectations and earnings grew 15% compared to 4Q 2016. Economic news was mixed with 200,000 new hires in January, unemployment remaining at 4.1% and wage growth rising 2.9%, its largest jump since June 2009. Consumer confidence reached its highest level since 2000 and home prices rose 6.3% in 2017. However, automakers posted disappointing sales to start the year, inflation rose a greater than expected 0.3% in January and prices are up 2.1% over the past year, producer prices also gained notably, new home sales fell 7.8% and fourth quarter GDP was revised down from 2.6% to 2.5%. Oil prices fell 4.8% during the month to end at $61.64 a barrel. US stocks fell 3.69% in February, but are up 1.39% for the year to date.
Foreign stocks followed a similar path as US stocks in February, but experienced a larger decline. Fourth quarter earnings from European companies are expected to grow 20.3% from 4Q 2016 and for companies that have announced to date, earnings and revenue have outpaced analysts’ estimates. The Bank of England said it expects to raise interest rates at a faster pace than it did just a few months ago given the pace of growth. Euro zone inflation slowed to a 14 month low in February supporting the ECB’s caution in removing stimulus. In China February factory growth picked up to a six month high, while Japan saw manufacturing growth ease. Emerging markets were relatively in line with developed markets in February. International stocks sank 4.64% for the month, but have gained 0.58% so far in 2018.
Bonds declined in February on the potential for the Fed increasing the Fed Funds rate faster than investors previously expected. In the minutes from the Fed’s January meeting they signaled increasing confidence in the US economy and held steady to their plan to raise interest rates three times this year. The confident outlook in the economy led many investors to wonder if they may accelerate their current plans. New Fed Chairman Powell testified before Congress and gave a similar optimistic outlook. The next increase could come as soon as March. The 10 year Treasury yield continued to rise over the month to finish at 2.87% up from 2.72% to start the month. It’s the highest yield level since January 2014. For the month, shorter term bonds outpaced longer term bonds and government bonds were the top performing sector. The broad bond market declined 0.95% in February and is down 2.09% for the year to date.
|Index Performance||Feb.||YTD||Trl 1 Yr|
|US Stock (Russell 3000)||-3.69%||1.39%||16.22%|
|Foreign Stock (FTSE AW ex US)||-4.64%||0.58%||21.84%|
|Total US Bond Mkt. (BarCap Aggregate)||-0.95%||-2.09%||0.51%|
|Short US Gov. Bonds (BarCap Gov 1-5 Yr)||-0.13%||-0.71%||-0.36%|
|Municipal Bonds (BarCap 1-10yr Muni)||-0.22%||-0.80%||1.22%|
|Cash (ICE ML 3Month T-Bill)||0.09%||0.21%||0.99%|