February is the only month of the year that has, on average…

March 2, 2023

February is the only month of the year that has, on average, ended unchanged.  The number of years the month has closed higher exceeds the number of years it has closed lower by just 6.  Coming off a very strong January we would have been happy with a “flat” month, but rapidly rising interest rates during the month put pressure on stocks.  Earlier this year there was growing hope the Federal Reserve may be getting close to ending their relentless series of interest rates hikes, but most of the economic news in February was inflationary.  The market is unlikely to mount a sustainable rally until the Fed is done raising interest rates and that is looking more and more like something that is going to take several months.  The S&P 500 was able to rally during the first few days of the month, but that was followed by 3 consecutive weeks of losses as the rate on the 2-year Treasury note hit the highest level since 2007.  At month end the S&P 500 had lost 2.6% and is now 3.4% higher for the year.  The rate on the 10-year Treasury rose by 11%.  Oil was down 3%, losing ground for the 8^th month in the last 9, and gold lost 5.6%.

The month began on a Wednesday with momentum from the January rally continuing into the new month.  A 25% jump in the price of Meta (formerly Facebook) helped the market, but news that nearly 3 times as many jobs were created in January as expected weighed on the indices.  At the end of the first 3 days of trading the S&P 500 had gained another 1.5% and was up 8% for the year.  The first full week on the month was a busy one for earnings reports and featured the State of the Union speech and a widely seen interview with Fed Chief Powell.  A strong quarterly report from Disney couldn’t offset concerns about rising interest rates and the S&P 500 ended the week with a 1.1% loss.  During the second full week of February, we learned CPI had declined from 6.5% to 6.4%, but PPI was up .7% while most analysts were looking for a gain of only .4%.  Retail sales were up a surprising 3% in January which means a strong economy but also higher interest rates.  The week ended quietly with the S&P 500 down just .3% and flat for the month.  The damage to the market was done during the last full week of the month. The week was shortened by the President’s Day holiday and began with disappointing news from Walmart and Home Depot that ignited a 2% sell-off, the worst day for the market in over 2 months.  The middle of the week was quiet but on Friday we learned the Personal Consumption Index, thought by many to be the Feds best gauge of inflation, was up .6% rather than the expected .5%.  At week’s end the S&P 500 had shed 2.7% and taken us firmly into negative territory for the month.

March has traditionally been a below average month for the market with a mean gain of .6% and an upside close 60% of the time.  For the past 8 months interest rates have been running the show and we expect that to continue in March.  The next Fed interest rate announcement is not due until March 22^nd and we are likely to spend a good bit of the month debating 25 basis points or 50 basis points increase.  We often see the Fed as the “tail of the dog” as their actions are generally predicted by the open market.  Remember, it took 7 months to bring inflation from 9.1% to 6.4% and while we are moving in the right direction, it appears rates are going to be 50 to 100 basis points higher before we are anywhere near the Fed’s 2% target.  Sustainable market rallies are going to be difficult with the Fed raising interest rates.  We continue to play defense by having higher than normal cash balances, having most fixed income holdings is short term individual bonds and by employing a 10% inverse position in most accounts.  For now, return of the money takes precedence over return on the money.

If you know someone who would be interested in learning more about Greenberg Financial Group, please contact us at 520-544-4909, or visit our website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.  You can also listen to previous shows by going to www.iheart.com or using the iHeart app and typing Money Matters with Dean Greenberg.