February was a mixed month for stocks.
The month started well generally, with share prices rising across the board on the back of bullish investor sentiment. However, later in the month, inflation concerns resulted in a pullback.
The EURO STOXX 50 and the UK’s FTSE 100, which both ended the period in the green, were among the best-performing stock market indexes during the month. US indexes such as the Dow Jones, the S&P 500, and the Nasdaq — which have had a good run since mid-October — posted small losses.
While indexes did not produce big gains in February, there were some notable moves from individual stocks during the month. In the Big Tech space, Meta Platforms’ shares surged after the company reported better-than-expected fourth-quarter revenue and announced a $40 billion share buyback. Meanwhile, in the semiconductor space, Nvidia shares jumped after the company produced Q4 revenue and earnings that were ahead of analysts’ estimates, and noted that it is seeing strong interest in its AI-related products. Other US-listed companies that posted strong gains thanks to better-than-expected earnings were home rental specialist Airbnb, mobility giant Uber, and cybersecurity company Palo Alto Networks. Tesla stock also moved higher, helping Elon Musk to regain the spot as the world’s richest man. Year-to-date, Tesla is up nearly 67%.
On the UK market, Rolls-Royce shares surged more than 35% after the aircraft engine maker posted solid results thanks to recovering demand for international travel, while BP shares climbed after the company reported record earnings for 2022. In Europe, a number of banking stocks, including the likes of HSBC and Banco Santander, performed well on the back of good results.
Inflation remained elevated in February, creating pressure for further interest rate hikes.
In the US, CPI inflation came in at 6.4% for January, up 0.5% over December’s reading and above the consensus forecast of 6.2%. And PCE inflation — the Federal Reserve’s preferred measure of price increases — came in at 4.7%, up 0.6% over December’s reading. These readings, along with a strong jobs report and robust consumer spending figures, highlighted the need for the Fed to continue hiking rates to get inflation under control. Market analysts now expect the Fed to make three more 25 basis points increases, taking the terminal rate to 5.25%. Higher interest rate expectations boosted the US dollar, with the US Dollar Index momentarily crossing the 105 level to hit a six-week high. They also pushed the 10-year US Treasury Yield to nearly 4.00%.
In Europe, the European Central Bank (ECB) is expected to raise rates by 50 basis points to 3% in March. And many market participants expect the Central Bank to continue raising rates after that. Currently, investors are betting on a peak ECB rate of around 3.75% by late summer.
While Europe looks set to avoid a recession due to warm weather and lower gas prices, higher rates still pose a threat to growth.
The euro ended the month near 1.0600 to the dollar.
Turning to commodities, February was a poor month for oil, which fell amid interest rate concerns. Investors were worried that higher interest rates in 2023 could weigh on the global economy, leading to an economic slowdown that could negatively impact demand for oil. Gold also experienced a downturn, falling back to the $1,825 per ounce level. Higher interest rates tend to reduce gold’s allure, as the precious metal does not produce any interest.
As for crypto, it was a relatively stable month for the asset class, with Bitcoin and Ethereum producing small gains. So far, 2023 has been a good year for cryptoassets. For example, during February, Bitcoin registered a 50% gain for the year. Some smaller, more niche cryptoassets have performed much better, delivering gains of more than 100% for the year.