Weekly Market Performance — March 1, 2024

LPL Research provides its Weekly Market Performance for the week of February 26, 2024. Another week and another record high for the broader market. The lack of any upside surprises in the January Personal Consumption Expenditures (PCE) data assuaged inflation fears percolating from previous hotter-than-expected consumer and whole inflation reports. Small caps led as the soft-landing scenario gained traction, leaving the Russell 2000 at a new 52-week high.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 03/01/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets Mostly Higher: Small caps led the way this week as the Russell 2000 posted its best performance week of the year. The prospect of a soft-landing economic scenario and strength in energy supported the outperformance. The S&P 500 and Nasdaq Composite also traded higher, capping off the week with record highs. Lower Treasury yields and continued momentum in artificial intelligence (AI) kept buyers engaged.

Seasonality: The S&P 500 wrapped up February with a 5.2% gain, extending its winning streak to four straight months and marking its best February since 2015. Since 1950, whenever the S&P 500 finished higher in both January and February, full-year returns for the index have averaged 19.8%, with 27 of 28 occurrences producing positive full-calendar-year returns. During these years, the index also generated an average March through December return of 11.8%, with 26 of the 28 periods producing positive returns.

Investors Buying Growth and Quality: The Russell 1000 Growth Index has outperformed its value counterpart year to date by almost six percentage points, driven largely by strong gains from technology stocks, particularly semiconductors led by NVIDIA (NVDA). Communication services, led by Meta (META), and healthcare, led by Eli Lilly (LLY), have also been big contributors to the strong year for growth.

The most expensive stocks in the index based on the forward (next 12 months) price-to-earnings ratio have performed best this year, while the cheapest stocks have lagged. The market is paying up for growth. The market is also paying up for quality, as the MSCI USA Quality Index has gained over 8.9% year to date, outperforming all major market averages.

LPL Research continues to favor growth style over value due to superior earnings power and the likelihood that the macroeconomic environment encompassing slowing growth, falling inflation, and steadier interest rates will be more favorable for growth stocks in 2024.

Sentiment Bullish: According to the most recent American Association of Individual Investors (AAII) survey, investor bullish sentiment increased from 44% to 46% this week. Neutral investor sentiment increased, while bearish sentiment declined by 5%. The percent of bullish investors remains well above the long-term historical average of 37.5%

Fixed Income Mostly Higher: The Bloomberg Aggregate Bond Index finished higher for the week, reversing three straight down weeks as rates rose following the uptick in inflation in January. Municipal bonds ended the week fractionally higher.

Investment grade and high yield corporate bond sales have been met with very robust demand. This month is on pace for a record amount of issuance for February, and the market has been able (and willing) to absorb the new debt without negatively impacting corporate credit spreads. Moreover, with valuations on the rich side for both high yield and investment grade corporate credit, the path to even tighter spreads is through a continued equity rally and sustained attractive yields with a slowdown in supply. The environment broadly remains supportive of credit risk. Economic growth should slow but not collapse, which is typically good for credit. That said, credit is not cheap.

Commodities Higher: West Texas Intermediate prices rallied over 4% and recaptured the closely watched 200-day moving average (dma). Natural gas prices witnessed a rebound after six consecutive down weeks. Oversold conditions and a larger-than-expected storage drawdown sparked the relief rally. Chesapeake Energy (CHK), one of the largest U.S. producers of natural gas, announced major production cuts last Thursday, causing natural gas prices to rebound from three-and-a-half-year lows reached last week. Weather conditions remain a wildcard for the commodity as winter winds down.

Gold rallied and challenged key resistance at $2,075. A pullback in rates and the U.S. dollar underpinned the buying pressure.

Economic Weekly Roundup

February Consumer Confidence: Consumer confidence retreated in February from a six-month high amid concerns over the U.S. political climate. Inflation remained on the minds of consumers, however, food and gas prices have receded in recent months. Amid the low unemployment rate, consumers are less sanguine regarding business conditions and the employment landscape.

January Personal Consumption Expenditures: As many economists expected, inflation accelerated in January, increasing by 0.3% month-to-month after several months of benign inflation in Q4 last year. Adjusted for inflation, personal spending declined by 0.1% month-over-month, after rising by 0.6% in December.

Softer spending, along with the decline in durable goods orders, suggests Q1 Gross Domestic Product (GDP) could be below 1%. Real disposable personal income did not grow in January, putting some pressure on consumers interested in keeping a solid pace of spending. Prices of services versus goods are on two different glide paths. Annual services inflation was 3.9%, but goods prices decreased by 0.5% from a year ago.

European Inflation Deflating: Inflation declined in six of Germany’s economically significant states last month, suggesting the nation’s inflation challenges are improving. In addition, economists polled by Reuters are forecasting inflation at 2.7% year over year in February, which is down from 3.1% in January. Both Spain and France’s February Consumer Price Index (CPI) came in above the FactSet consensus, but both reports improved from January.

Germany and France’s inflation readings have declined to levels not seen since mid-2021, however, service pricing remains sticky. This presents the European Central Bank with a dilemma over when and if to cut interest rates. LPL Research maintains a neutral stance on developed international markets as the European economy has struggled in combating inflation along with potential uncertainty from the Russian-Ukraine crisis.

Weekly Employment Report: Initial and continuing claims came in above analysts’ expectations and the prior week’s readings. LPL Research continues to believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the lagged effects of tighter monetary policy.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: BEA Total Light Vehicle Sales (Feb)
• Tuesday: Purchasing Managers’ Index (PMI) Composite (Feb), S&P Global PMI Services (Feb), durable and factory orders (Jan), Institute of Supply Management (ISM) Services (Feb)
• Wednesday: JOLTS Job Openings (Jan), wholesale inventories (Jan), Federal Reserve Beige Book
• Thursday: Initial and continuing unemployment claims, unit labor costs (Q4), productivity (Q4), trade balance (Jan), consumer credit (Jan)
• Friday: Hourly earnings (Feb), average workweek (Feb), manufacturing payrolls (Feb), nonfarm payrolls (Feb), February Unemployment