Financial market overview

2 Reasons Why February May Be a Difficult Month on Wall Street

2024.02.02 09:58

After a comparatively sturdy begin to the yr in January, historical past says traders ought to brace for contemporary turmoil in February, which has a popularity for being one of many worst months of the yr for the inventory market.

Since 1945, the has suffered a mean lack of round -0.3% in February.

That compares to a mean acquire of roughly +0.8% for the opposite months of the calendar. The benchmark index fell -2.6% final February as traders apprehensive in regards to the Federal Reserve’s aggressive charge hike plans.

S&P 500 Monthly Average PerformanceS&P 500 Monthly Average Performance

Indeed, the Fed continues to be the principle driver of investor sentiments and inventory value motion, with many speculating not too long ago about when the U.S. central financial institution would possibly begin slicing rates of interest.

As of this writing, after right this moment’s surprisingly above-estimate jobs report, which confirmed that the U.S. economic system had added 353,000 jobs in opposition to an estimate of 187,000 in January, monetary markets noticed about a 65% probability of the Fed leaving charges at present ranges in March, in comparison with a 35% chance of a quarter-point charge minimize.

Speaking on the post-meeting press convention on Wednesday, Fed Chair Jerome Powell famous the labor market and financial progress could have to gradual to finally obtain the Fed’s aim of bringing inflation again right down to its 2% goal.

“The executive summary would be growth is solid to strong … 3.7% unemployment indicates the labor market is strong,” the Fed chief mentioned. “Let’s be honest, this is a good economy,” he added.

Looking out to May, traders imagine there’s a roughly 90% probability charges are decrease by the tip of that assembly, as per the Investing.com .

With traders persevering with to gauge the outlook for rates of interest, , and the economic system, a lot will probably be on the road within the month forward.

U.S. CPI Report: Tuesday, February 13

The U.S. authorities will launch the January report on Tuesday, February 13, at 8:30AM ET and the numbers will seemingly present that costs proceed to extend at a tempo practically twice the central financial institution’s goal.

While no official forecasts have been set but, expectations for annual CPI vary from a rise of three.2% to three.6%, in comparison with a 3.4% annual tempo in December.

CPI YoY

The intently watched shopper value index has come down considerably for the reason that summer season of 2022, when it peaked at a four-decade excessive of 9.1%, nevertheless, inflation continues to be rising way more rapidly than the 2% charge the Fed considers wholesome.

Meanwhile, estimates for the year-on-year determine – which doesn’t embody meals and power costs – focus on 3.7%-4.0%, in comparison with December’s 3.9% studying.

Core CPI YoY

The underlying core determine is intently watched by Fed officers who imagine that it gives a extra correct evaluation of the long run path of inflation.

Prediction: I imagine the numbers will seemingly present that neither inflation nor core inflation is falling quick sufficient for the Fed to pause its inflation-fighting efforts.

During Wednesday’s post-FOMC assembly press convention, mentioned that charge cuts wouldn’t be acceptable till there’s “greater confidence that inflation is moving” in direction of the central financial institution’s 2% goal.

“Inflation is still too high. Ongoing progress in bringing it down is not assured,” Powell warned.

Therefore, I maintain the opinion that the present setting will not be indicative of a Fed that might want to pivot on coverage and there’s nonetheless a lengthy strategy to go earlier than policymakers are able to declare mission achieved on the inflation entrance.

This autumn Earnings Season Continues

Investors await a flood of earnings in February as Wall Street’s fourth quarter reporting season continues.

Three of the so-called ‘Magnificent Seven’ tech shares reported their outcomes final evening, with Facebook-parent Meta Platforms (NASDAQ:), and e-commerce big Amazon (NASDAQ:) delivering blowout earnings and steerage, whereas iPhone maker Apple (NASDAQ:) supplied an outlook for the March quarter that disillusioned traders.

Looking out to subsequent week, a few of the notable corporations reporting outcomes embody Walt Disney (NYSE:), Caterpillar (NYSE:), McDonald’s Corporation (NYSE:), Pepsico (NASDAQ:), Eli Lilly (NYSE:), Ford (NYSE:), Uber (NYSE:), Palantir (NYSE:), Snap, Pinterest (NYSE:), and PayPal (NASDAQ:).

The following week sees high-profile names like Coca-Cola (NYSE:), Airbnb, Shopify (NYSE:), Coinbase (NASDAQ:), DraftKings (NASDAQ:), Roku (NASDAQ:), Cisco (NASDAQ:), Arista Networks (NYSE:), and Occidental Petroleum (NYSE:) report earnings.

Retailers then take middle stage within the second half of the month when heavyweights Walmart (NYSE:), Home Depot (NYSE:), Target, Lowe’s, TJX Companies (NYSE:), Macy’s, Best Buy (NYSE:), and Costco (NASDAQ:) ship their newest monetary outcomes.

Another key title to look at will probably be Nvidia (NASDAQ:), whose This autumn outcomes are scheduled to come back out after the closing bell on Wednesday, February 21. Shares of the Santa Clara, California-based tech big have surged 222% over the previous yr, rising alongside spiking curiosity in synthetic intelligence (AI) developments.

It is price mentioning that Nvidia shares look like extraordinarily overvalued in the mean time, as per the quantitative fashions in InvestingPro, which level to a potential draw back of -16% from their present market worth.

Nvidia Fair Value

Source: InvestingPro

The fourth-quarter earnings season is sort of midway by means of. Of the 208 S&P 500 corporations which have reported by means of Friday, about 80% have topped expectations, in line with FactSet information.

In a typical quarter, 76% of S&P 500 corporations beat estimates.

What To Do Now

While I’m at present lengthy on the S&P 500, and the by way of the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ), I’ve been cautious about making new purchases as we’re coming into one of many weakest months of the yr traditionally.

Therefore, a pullback in February wouldn’t be stunning in my opinion because the latest run to document highs will probably be laborious to maintain amid the present backdrop.

(*2*)Nasdaq Vs. S&P 500 Vs. Dow Jones
Overall, it’s necessary to stay affected person and alert to alternative. Not shopping for prolonged shares, and never getting too concentrated in a explicit firm or sector are nonetheless necessary.

***

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Disclosure: I usually rebalance my portfolio of particular person shares and ETFs based mostly on ongoing threat evaluation of each the macroeconomic setting and corporations’ financials.

The views mentioned on this article are solely the opinion of the creator and shouldn’t be taken as funding recommendation.

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