February Market Recap
Artificial Intelligence and the willingness of big technology companies to invest in AI is the hottest trend on Wall Street. Hot enough that this month’s newsletter will deviate from its usual routine to share some relevant context.
The growing enthusiasm for AI and strong corporate earnings drove stocks higher in February. All three major benchmarks finished higher with the S&P 500 and NASDAQ both notching gains better than 5%. The S&P closed above 5,000 for the first time on February 9 and ended the month at an all-time high.
Every sector in the S&P was positive. Consumer Discretionary (+8.6%) led the way. Industrials (+7%), Materials (+6.3%) and Technology (+6.2%) also delivered strong returns. Utilities (+0.5%) were the biggest laggard.
Benchmark Returns: February 2024 | YTD 2024
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Dow Jones
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S&P 500
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NASDAQ
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+2.22% | +3.47%
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+5.17% | +6.84%
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+6.12% | +7.20%
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We wrote last month that interest rate cuts by the Fed may prove to be the biggest financial story of 2024. Consider AI a strong contender for that title.
Rarely do we highlight individual companies in this newsletter, but the meteoric rise of California-based Nvidia is too meaningful to ignore. Nvidia builds microchips called GPU’s (graphics processing units) that perform high-speed mathematical calculations . For decades, these were used in computers to boost processing speed, most often related to video games.
Now that Artificial Intelligence has evolved enough to seduce entire industries with the potential of new revenue streams, companies realized that Nvidia’s GPU’s were ideally suited to produce the outcomes (images, videos, etc.) needed to build and develop generative AI.
Huge technology companies flush with cash are suddenly racing to build the infrastructure needed for them to capitalize on the coming AI boom. As a result, demand for Nvidia products has skyrocketed.
That brief history explains why Nvidia has been a stock market darling. But investors were considerably more skeptical that Nvidia could deliver another earnings report strong enough to justify all the hype. And yet Nvidia did just that.
On February 21, the company again blew away even the most optimistic expectations. Revenue more than tripled (+265%) from a year earlier and Nvidia significantly raised its future sales and profit forecasts. Its shareprice popped more than 16% the next day.
Nvidia has become a proxy for the outlook on Artificial Intelligence, for Technology as an industry, and (at least in the short-term) for the equity market as a whole. It has grown into the third-largest company in the world based on market capitalization, behind only Microsoft and Apple.
This is relevant because US equities in recent months have tended to follow Nvidia’s lead. The day after Nvidia’s earnings was the best single-day for the S&P 500 (+2.1%) and the NASDAQ (+3%) in more than a year. Nearly half the S&P’s February gains came in the week immediately after Nvidia’s historic earnings report.
There were plenty of other quality earnings as well. With all but a handful of companies reporting Q4 earnings, the blended earnings for S&P 500 companies grew 4% compared to a year earlier. The US economy by most measures remains incredibly resilient.
The caveat of course is that good jobs data, impressive earnings, and still-strong consumer spending mean inflation may remain a thorn in the market’s side. It could also convince the Fed to delay rate cuts longer than expected.
The latest inflation data did not move financial markets much in either direction. The Consumer Price Index (CPI) increased 0.3% from a month earlier and 3.1% in the last year. Personal Consumption Expenditures (PCE) showed 0.3% inflation from a month ago and 2.4% in the last year.
Bond yields ended February near 3-month highs. The 10-year US Treasury reached 4.35% in mid-February and finished the month at 4.25%. This after falling to 3.82% on February 1.
Oil prices gained 8.5% in February. West Texas Intermediate Crude is back above $80 per barrel, up roughly 18% from its December low.
International equities bounced back but still lagged the big US stock benchmarks. Non-US Developed equities gained 3% last month. Emerging Market equities were up 4.2%.
It’s notable that the Eurozone reported no economic growth in the final quarter of 2023, reflecting conditions less favorable than in the US.
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
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