Markets moved broadly higher in February as AI-focused companies continued to fuel the rally.
A slew of robust earnings reports, led by some large tech companies, supported investor sentiment throughout the month. With 73% of S&P 500 companies having reported a positive earnings surprise, the strong data helped offset some uncertainty around the timing of a potential Fed rate cut.
Unlike January, market participation was more widespread in February, with larger and smaller companies climbing higher. The small-cap Russell 2000 led the way, gaining 5.52% after faltering to start the year. Large-cap US indices weren’t far behind, with the Nasdaq 100, S&P 500 and Dow Jones Industrial Average gaining 5.29%, 5.10%, and 2.22% respectively.
Overseas, international markets trailed the US, though still ended the month with respectable gains. Developed international stocks rose 2.74% while emerging markets increased 3.48%. Despite the more modest returns, there was still a noteworthy event to celebrate - Japan’s Nikkei 225 Index reached a new record high for the first time since 1989.
There was no official meeting scheduled in February, but Fed members pushed back against a near-term start to interest rate cuts during various press conferences. The statements caused investors to readjust expectations for an initial rate cut, with June now sitting as the front runner for a potential first move. With rate cut expectations being pushed further into the year, the 10-year treasury yield rose from 3.99% to 4.25%, causing aggregate US bonds to fall 1.41%. Despite the ongoing headwinds, bond yields remain relatively favorable compared to just a couple of years ago.
While markets have continued to trend higher, it raises the question of whether the recent rally is overextended. With strong earnings supporting the fundamentals, and rate cuts still on the horizon, data suggests there could be further upside. However, it’s not unreasonable to expect some volatility along the way. Markets don’t move in a straight line. This is why it’s important to have a defined investment strategy and plan, to provide guidance throughout the inevitable uncertainties along the way. Our investment team is currently looking for ways to protect the gains that we have seen since 2023 and position portfolios to take advantage of any future volatility.
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