February 2024 Monthly Market Insight

U.S. Markets

Stocks saw modest gains last month as positive economic data and upbeat Q4 corporate reports helped support prices.¹

The Dow Jones Industrial Average advanced 1.22 percent, while the Standard & Poor's (S&P) 500 Index gained 1.59 percent. The Nasdaq Composite, which led throughout 2023, rose 1.02 percent.

Bumpy Start

It was not a straight line for stocks in January. As the month began, investors took a breath during the end-of-year rally to question the Federal Reserve’s next move on interest rates.

Goldilocks

By mid-month, there was plenty of news to suggest a "Goldilocks" economy was taking shape indicating economic growth that was neither too "hot" nor too "cold."

Many of the headlines were upside surprises. Unexpected news on the jobs market was followed by December retail sales, which came in better than expected. The December inflation report was mixed, while the Q4 report on gross domestic product (GDP) topped economists’ expectations.^2,3,4,5

Mixed Signals from the Fed

As expected, the Fed kept rates unchanged at its Federal Open Market Committee meeting, which concluded on January 31. In its summary report, some investors heard more neutral language that gave the Fed increased flexibility to cut rates in the coming months. Others, however, believe this would be the case only if the Fed believes the danger of inflation has decreased. The news took the wind out of stocks’ sails, modestly curtailing gains for the month.⁶

Sector Scorecard

Five of the 11 major sectors of the S&P 500 Index posted gains last month. Communications Services (+4.43 percent) was the clear leader, with Financials (+3.09 percent), Health Care (+2.93 percent), and Technology (+2.70 percent) performing well above the overall index’s return. Consumer Staples (+1.24 percent) also gained in January. Real Estate (-4.82 percent), Consumer Discretionary (-4.41 percent), Materials (-3.89 percent), Utilities (-2.97 percent), Industrials (-0.96 percent), and Energy (-0.51 percent) all declined over the month.⁷

What Investors May Be Talking About in February

At its December 2023 and January 2024 meetings, the Federal Reserve made it clear that it is now leaning away from rate hikes and toward rate cuts as it attempts to steer the economy to a soft landing this year. Therefore, in the month ahead, investors are expected to focus on two factors that may influence stock prices.

The first will be any signs of tailwinds in company fundamentals as the earnings season continues to unfold. The second will be any indication of a pickup in market volatility, which can happen as the economy transitions from a monetary tightening to a lower interest rate environment.

Fed officials are expected to make multiple appearances in February, which may indicate how members are seeing inflation and the outlook for rates. The next two-day Fed meeting will not be until mid-March.⁸

World Markets

The Morgan Stanley Capital International (MSCI) EAFE Index rose 0.54 percent in January—a modest rally that trailed the tech-driven gains in the U.S.⁹

European stocks were mixed. France picked up 1.51 percent, and Germany rose 0.91 percent. However, the United Kingdom fell 1.33 percent while Spain slipped 0.24 percent.¹⁰

A similar pattern was evident in the Pacific Rim markets. Japan’s Nikkei index (+8.43 percent) and Australia’s ASX 200 (+1.18 percent) notched gains, while China’s Hang Seng Index (-9.16 percent) and Korea’s KOSPI (-5.96 percent) lost ground.¹¹

Indicators

Gross Domestic Product (GDP)

The U.S. economy grew by a 3.3 percent annualized rate in Q4, thanks to consumer and government spending. Economists expected 2.0 percent growth. GDP for all of 2023 grew at a better-than-expected 2.5 percent annualized rate, compared with 1.9 percent in 2022.¹²

Employment

Employers added 216,000 jobs in December, ahead of the 170,000 expected by economists. December’s increase was above November’s and October’s revised job gains of 173,000 and 105,000, respectively. The unemployment rate remained at 3.7 percent, while average hourly earnings rose by 0.4 percent.¹³

Retail Sales

Consumer spending rose 0.6 percent in December, exceeding expectations of a 0.4 percent bump.¹⁴

Industrial Production

Industrial output edged up 0.1 percent in December—the first increase in four months—compared with a 0.6 percent drop in November and a 0.4 percent revised decline in October.¹⁵

Housing

Housing starts fell 4.3 percent in December, which was likely due to rainy weather. Starts declined 9.0 percent for all of 2023.¹⁶

Existing home sales fell 1.0 percent in December, compared with November. December sales were down 6.2 percent from the same month in 2022—the lowest level since August 2010. Full-year sales for 2023 were the lowest since 1995. The year-over-year gain in the median sales price was 4.4 percent.¹⁷

Month-over-month new home sales increased 8.0 percent in December and were higher by 4.4 percent compared to a year ago.¹⁸

Consumer Price Index (CPI)

Consumer prices rose 0.3 percent in December over the previous month and 3.4 percent compared with a year prior. This was higher than the 3.2 percent increase economists expected. Core prices, which exclude food and energy, rose 3.9 percent year over year.¹⁹

Durable Goods Orders

Orders of manufactured goods (designed to last three years or longer) were virtually unchanged in December—up $0.1 billion following a 5.5 percent increase in November.²⁰

The Fed

The Federal Open Market Committee left rates unchanged at its January 2024 meeting. The Fed used more neutral language in their policy document, giving them more flexibility to cut rates in the coming months.

However, the Fed qualified this by saying that cuts were not automatic and that it would consider them only if inflation dangers abated. Financial markets were somewhat unsettled by the Fed’s updated language.²¹

1. WSJ.com, January 31, 2024

2. MarketWatch.com, January 17, 2024

3. CNBC.com, January 18, 2024

4. WSJ.com, January 18, 2024

5. CNBC.com, January 25, 2024

6. WSJ.com, January 31, 2024

7. SectorSPDR.com, January 31, 2024

8. StLouisFed.org, 2024

9. MSCI.com, January 31, 2024

10. MSCI.com, January 31, 2024

11. MSCI.com, January 31, 2024

12. CNBC.com, January 25, 2024

13. CNBC.com, January 5, 2024

14. CNBC.com, January 17, 2024

15. Statista.com, January 26, 2024

16. Reuters.com, January 18, 2024

17. CNBC.com, January 19, 2024

18. NationalAssociationofHomeBuilders.org, January 25, 2024

19. WSJ.com, January 11, 2024

20. Census.gov, January 25, 2024

21. WSJ.com, January 31, 2024