Market Brief: March 2023

March 2, 2023

The Markets (as of market close February 28, 2023)

February saw stocks slide lower after posting solid gains to begin the year. Each benchmark index listed here retreated from their January totals, with the Dow falling the furthest, followed by the Global Dow, the S&P 500, the Russell 2000, and the Nasdaq. Investors saw hope in January that inflation may be waning. However, February data showed that inflationary pressures reversed course and expanded.

The Federal Reserve has consistently maintained that it seeks to achieve maximum employment and hold inflation at 2.0%. So far, in 2023, job growth has been solid, with more than 500,000 new hires. The Consumer Price Index (+0.5%) and the Personal Consumption Expenditures Price Index (+0.6%) revealed increasing inflationary pressures over the previous month. According to the latest PCE price index, inflation has risen 5.4% since January 2022. With evidence that the economy can withstand further tightening, the Federal Reserve is likely to continue to drive interest rates higher and for a longer period of time. This, coupled with lagging corporate earnings and the Russia/Ukraine war, which is entering its second year, has caused some investors to move from risk.

Several market sectors posted solid gains in February, while others lagged. Consumer discretionary and information technology increased by about 16.9% and 7.2%, respectively. On the other hand, health care (-4.5%), utilities (-6.3%), and energy (-3.7%) lost ground.

Manufacturing activity changed little in January from the previous month. Durable goods orders declined in January after climbing in December. The purchasing managers' index declined in January as weak customer demand resulted in subdued sales. Meanwhile, input costs and output charges rose at increased rates as price pressures strengthened again.

Corporate earnings in the fourth quarter were generally subpar. Roughly half of the S&P 500 companies have reported above-estimated earnings thus far in the fourth quarter. That is below both the five-year and 10-year averages. It is possible that fourth-quarter earnings for S&P 500 companies could decline, which would mark the first time the index has reported a year-over-year decrease in earnings since the third quarter of 2020.

Bond prices fell in February, driving yields higher. Ten-year Treasury yields rose 39 basis points from January. During the last day of February, the yield hit 3.98%, reaching its highest level since November 2022. The 2-year Treasury yield ended the month at 4.82%. The dollar advanced against a basket of world currencies. Gold prices fell nearly $110.00 per ounce in February.

Crude oil prices declined in February for the fourth straight month. Oil prices have fallen due to an unusually warm winter in the United States and Europe. In addition, rising inflation and interest rates have pushed against oil prices, while driving the dollar higher. The retail price of regular gasoline was $3.379 per gallon on February 20, $0.110 less than January's price and $0.151 lower than a year ago.

Market/Index	2022 Close	Prior Month	As of February 28	Monthly Change	YTD Change
DJIA	33,147.25	34,086.04	32,656.70	-4.19%	-1.48%
Nasdaq	10,466.48	11,584.55	11,455.54	-1.11%	9.45%
S&P 500	3,839.50	4,076.60	3,970.15	-2.61%	3.40%
Russell 2000	1,761.25	1,931.94	1,896.99	-1.81%	7.71%
Global Dow	3,702.71	3,990.37	3,881.41	-2.73%	4.83%
Fed. Funds target rate	4.25%-4.50%	4.25%-4.50%	4.50%-4.75%	25 bps	25 bps
10-year Treasuries	3.87%	3.52%	3.91%	39 bps	4 bps
US Dollar-DXY	103.48	102.08	104.95	2.81%	1.42%
Crude Oil-CL=F	$80.41	$79.08	$76.86	-2.81%	-4.41%
Gold-GC=F	$1,829.70	$1,944.00	$1,834.20	-5.65%	0.25%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking Ahead

Inflation accelerated in February after showing signs of slowing in the previous month. Investors hope March data will show price pressures begin to decelerate again. Rising inflation and strong job growth support more rate hikes from the Federal Reserve when it next meets in late March.

Data sources: Broadridge Investor Communication Solutions, Inc.

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