Stocks Retreated in February But Growth Attempts a Comeback

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Stocks pulled back in February as investors took profits from a big rally the previous month. Still, money returned to popular growth names like Tesla and Nvidia.

The S&P 500 dropped 2.6 percent in February. The technology-heavy Nasdaq-100 slid just 0.5 percent, outperforming the broader market for a second straight month. Energy, a classic inflationary trade, fell the most as crude oil and natural gas skidded lower.

The highs occurred on the second session of the month after Federal Reserve Chairman Jerome Powell said “disinflation” had begun. That spurred optimism about slower interest-rate hikes. Then upward revisions of older inflation data and higher readings for January hurt sentiment and lifted bond yields.

By the time February ended, both indexes pulled back to some potentially important levels. The S&P 500 returned to its 50-day moving average, while the Nasdaq retested its December highs.

S&P 500, daily chart, with the 50-day moving average.

Big Movers in February

Top Gainers in the S&P 500 Last Month
Catalent (CTLT)+28%The contract manufacturer of pharmaceuticals may be acquired by Danaher, according to a report by Bloomberg News.
West Pharmaceutical (WST)+19%The drug maker jumped after beating estimates and authorizing a $1 billion share buyback.
Nvidia (NVDA)+19%The semiconductor company’s earnings, revenue and guidance surprised to the upside. The gaming market improved and management forecast strong demand as artificial intelligence (AI) spreads.
Tesla (TSLA)+19%The electric-vehicle maker kept advancing amid reports of market share gains and sold-out queues for new Model Ys.
Meta Platforms (META)+17%The social-media giant beat revenue estimates and announced a $40 billion buyback.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
Lumen Technologies (LUMN)-35%The junk-rated telecom issued weak guidance, its second straight drop following quarterly results.
Match (MTCH)-23%The online-dating stock missed estimates for earnings and revenue as usage slowed.
Moderna (MRNA)-21%The biotechnology company missed profit forecasts as demand weakened for its coronavirus vaccines.
DISH Network (DISH)-21%The satellite-television stock fell on worries about its planned wireless network.
Westrock (WRK)-20%The packaging company missed estimates and cut guidance as demand slowed.
Source: TradeStation Data

Sector Watch

The table below shows sector performance last month.

Technology+0.4%
Industrials-0.9%
Consumer Discretionary-2.1%
Consumer Staples-2.3%
Financials-2.4%
S&P 500-2.6%
Communications-2.9%
Materials-3.3%
Health Care-4.6%
Real Estate-5.9%
Utilities-5.9%
Energy-7%
Source: TradeStation Data

Key Economic Events in February

Below are some key economic events from last month.

  • Fed Slows Rate Hikes, Mentions ‘Disinflation’: The Federal Reserve raised interest rates by 25 basis points, the smallest increase since March 2022. Chairman Jerome Powell also said that “disinflation” had begun. (2/1)
  • Job Data Crushes Forecasts: The U.S. economy added 517,000 jobs in January, almost triple the forecast amount. Unemployment fell more than expected to the lowest level since 1969. (2/3)
  • Old Inflation Data Revised Higher: The government revised the consumer price index (CPI) higher for November and December. The news erased a welcome decline in prices and contributed to fears of higher interest rates. (2/10)
  • Strong Retail Sales Drive Rate Hike Fears: Retail sales increased by 3 percent in January, well ahead of estimates. While the news suggested a recession isn’t likely, it increased worries about the Fed hiking interest rates. (2/15)

What Experts Are Saying

Below are some noteworthy commentaries.

  • Goldman Sachs strategist David Kostin predicted the S&P 500 will end the year little changed around 4,000. He cited high valuations, weak earnings and potential risk associated with the federal debt ceiling. (2/6)
  • Deutsche Bank said major short covering from last year’s bear market is mostly finished. The report said $300 billion in downside positioning is gone, potentially removing an upside catalyst for the S&P 500. (2/8)
  • Bank of America reported accelerating consumer activity in January. Credit and debit card spending rose 5.1 percent from a year ago, more than twice the growth rate in December. The bank partially attributed the growth to higher minimum wages and social security payments. (2/10)
  • JPMorgan Chase strategist Mislav Matejka warned the stock market may have already reached its peak for the year. He cited higher interest rates and ongoing recession risks. (2/20)
  • Morgan Stanley strategist Mike Wilson said the S&P 500 could drop to 3,000 in the first half of the year because of poor earnings and rising interest rates. He called the risk-reward “very poor,” adding that the risk premium for stocks has entered a “death zone.” (2/21)

Popular Futures Contracts in February

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESH23 (Mar)3/17/23ESM23-3%
Nasdaq-100 E-Mini (@NQ)NQH23 (Mar)3/17/23NQM23-0.9%
Dow Jones E-Mini (@YM)YMH23 (Mar)3/17/23YMM23-4.4%
Russell 2000 E-Mini (@RTY)RTYH23 (Mar)3/17/23RTYM23-2%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Tues
3/7
Jerome Powell Testimony in CongressGuidance on monetary policy. Will he hint at 50 basis points later this month?
Fri
3/10
Non-farm payrollsWages & unemployment. Will January’s large payroll gain be revised lower?
Tues
3/14
Inflation reportThe consumer price index one hour before U.S. markets open could shape rate expectations.
Fri
3/17
Quadruple witchingTrading volumes are typically heavy as futures and options contracts expire.
Wed
3/22
Interest rate decisionThe Fed will announce interest rate changes and issue a new quarterly “dot plot” with projections of future policy.

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement Investment and Trading Disclosures Booklet – Futures.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.