February 2024 Market Recap

We are excited to share insights from the Wealth Management Investment Strategy Group (ISG).

Equity markets were strong in February – major US, European, and Asian stock indices surged. This was driven by robust US economic data which helped further ease concerns of a hard landing, better-than-expected fourth quarter 2023 earnings across the developed markets, and Chinese authorities increased their focus on capital markets which helped improve sentiment.

Here’s a recap on what happened in the markets.

The markets: equities strong, bonds underperform

US equities continued their positive momentum in February, with the S&P 500 finishing the month up +5.3%. Strong Q4 2023 earnings and robust economic data prompted the market rally. The more resilient US economic growth, better than expected fourth quarter earnings and continued price momentum were key factors contributing to ISG lifting the odds of their good case scenario of the S&P 500 reaching 5,300 by year-end from 20% to 30%.

Global bonds, however, did not perform as well. Strong economic activity, higher-than-expected inflation, and cautious central bankers pushed bond yields higher. The 10-year US Treasury yield rose to 4.25%, from 3.91% in January.

The economy: resilient

The US economy remained resilient through the beginning of the year. The labor market continued to be strong in February, with nonfarm payrolls coming in higher than consensus. The unemployment rate remained at a low 3.9%.

January inflation also surprised to the upside rising more than anticipated, driven by a monthly increase in shelter costs and the other services components. CPI inflation rose 3.1% over the prior year in January, while the Fed’s preferred inflation metric (the Personal Consumption Expenditures index) remains above the Fed’s 2% target. This said, ISG notes recent strength in the economic data was boosted by erratic factors and does not derail the disinflationary process.

Given the resilience in US economic activity, hotter-than-expected inflation data, and recent Fed commentary suggesting patience before cutting rates, ISG has pushed back their expectation for the first rate cut to June (from March as expected at the beginning of the year).

What are we watching over the month ahead?

Global central bank meetings are top-of-mind. The European Central Bank met early in March and kept rates unchanged. The Fed, Swiss National Bank, and the Bank of England will meet this month. ISG expects rates will remain unchanged after these meetings and that central bankers will want to see stronger evidence that inflation is sustainably on track towards their respective target rates. The Bank of Japan is also meeting this month and may decide to end its negative interest rate policy.