The S&P 500 (SP500) slid 2.61% for February to end at 3,970.15 points, final figures showed on Tuesday, closing out a turbulent month marred by hotter-than-expected inflation data and concerns over the Federal Reserve’s rate hikes.
February began on a sure footing, after the Fed hiked interest rates by 25 basis points as widely expected and chief Jerome Powell said that a “disinflationary process” had started. However, data in the form of an explosive jobs report on the first Friday of the month set the stage for further disappointing economic reports to follow.
“Having just experienced a strong rally in January, the initial mood in markets was pretty positive as February began. However, that all changed on the third day of the month, when the US jobs report for January was released,” Deutsche Bank analysts Henry Allen and Jim Reid said in a monthly review note.
The first full week of the month featured Powell at an event, where he again repeated his comments about disinflation and did not seem too concerned by the jobs report. However, a host of Fed speakers were much more negative, warning that more rate hikes would be needed to combat inflation.
The middle week of February saw the release of the widely anticipated consumer price index and producer price index reports. Both came in hotter-than-anticipated and exacerbated fears that a lot more work would need to be done by the Fed in terms of raising interest rates to combat inflationary pressures. Furthermore, a surge in retail sales in January suggested that consumer spending has remained strong, which in turn could keep prices elevated.
Last Friday, the S&P 500 (SP500) posted its worst weekly performance since early December 2022, with Fed concerns continuing to grow after the minutes of the monetary policy committee’s gathering earlier in the month showed that some policymakers had favored raising the key rate by 50 basis points rather than the 25 basis points the central bank finally went with. On top of that, market participants grappled with yet more stronger-than-expected inflation data in the form of the PCE price index report for January.
“After a very strong start to the year for financial markets, February saw that go into reverse, with losses across equities, credit, sovereign bonds and commodities. That came amidst growing concern about the persistence of inflation, which in turn led investors to ramp up their expectations for central bank rate hikes,” Deutsche Bank’s Allen and Reid said.
Earnings news was also in focus in February, with the heaviest section of the fourth quarter results season. Megacap technology companies Amazon (AMZN), Apple (AAPL) and Alphabet (GOOG) (GOOGL) dismayed with their reports, while Facebook-parent Meta (META) impressed. Entertainment giant Disney (DIS) unveiled a restructuring that was cheered by investors. Meanwhile, ride-sharing firm Uber (UBER) touted robust quarterly bookings. On a negative note, Dow 30 components Walmart (WMT) and Home Depot (HD) issued disappointing forecasts.
Given the negative sentiment, it was somewhat surprising that Information Technology was the only S&P 500 (SP500) sector to eke out gains for February. The other ten sectors ended in the red, led by a more than 7% slump in Energy as oil prices slipped. Defensive sectors also saw heavy selling, with Utilities and Real Estate shedding more than 6% each. See below a breakdown of the weekly performance of the sectors as well as their accompanying SPDR Select Sector ETFs from Jan. 31 close to Feb. 28 close:
#1: Information Technology +0.29%, and the Technology Select Sector SPDR ETF (XLK) +0.41%.
#2: Industrials -1.17%, and the Industrial Select Sector SPDR ETF (XLI) -0.86%.
#3: Consumer Discretionary -2.27%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) -2.13%.
#4: Financials -2.45%, and the Financial Select Sector SPDR ETF (XLF) -2.30%.
#5: Consumer Staples -2.49%, and the Consumer Staples Select Sector SPDR ETF (XLP) -2.32%.
#6: Materials -3.49%, and the Materials Select Sector SPDR ETF (XLB) -3.33%.
#7: Communication Services -4.67%, and the Communication Services Select Sector SPDR Fund (XLC) -2.87%.
#8: Health Care -4.72%, and the Health Care Select Sector SPDR ETF (XLV) -4.64%.
#9: Real Estate -6.07%, and the Real Estate Select Sector SPDR ETF (XLRE) -5.86%.
#10: Utilities -6.36%, and the Utilities Select Sector SPDR ETF (XLU) -5.92%.
#11: Energy -7.61%, and the Energy Select Sector SPDR ETF (XLE) -7.03%.