Topline
Major stock indexes fell this month as Wall Street digested the latest round of corporate earnings and reacted to growing expectations the Federal Reserve may hike interest rates higher than anticipated, a potential nightmare for stock prices as borrowing costs slash into profits.
February gave traders plenty of reasons to frown.
Key Facts
The Dow Jones Industrial Average, S&P 500 and tech-heavy Nasdaq each fell this month, with each index largely flat in Tuesday trading.
The Dow was the worst-performing index with a 4% monthly loss, while the S&P and Nasdaq fell 2% and 1%, respectively.
The deterioration in equity prices came amid a historically bad earnings season as companies reported financials from the last stretch of 2022.
Companies listed on the S&P beat consensus analyst sales and profit estimates at their lowest rate since early 2020 in the most recent financial period, according to data compiled by JPMorgan last week.
Perhaps more worrisome for investors is the fact that less than 30% of companies revised profit guidance higher, also a three-year low, according to JPMorgan data.
And stocks could get another kick in the teeth as experts keep raising their long-term expectations for interest rates, already hovering at a 16-year high: Bank of America economist Aditya Bhave said Tuesday the Fed “might have to raise rates closer to 6% to get inflation back” to about 2% year-over-year, predicting a far higher peak federal funds rate this year than priced in by the market.
Key Background
February’s earnings-inspired dip may inspire an even worse decline in March due to the grim profit expectations, Morgan Stanley’s Michael Wilson warned in a Monday note to clients. The bond market similarly slipped in February, with 10-year Treasury yields skyrocketing 37 basis points to 3.91%, nearing its highest level since 2008 as the yield curve grows further inverted. Surprisingly immune from February’s slumping sentiment was bitcoin, which rose 1% on the month and maintained its January gains.
Contra
“The decline we have seen this month is more apparent than real,” Brad McMillan, Commonwealth Financial Network’s chief investment officer, wrote in a Tuesday note to clients, saying the market continues “bouncing along” during a flurry of macroeconomic news.
Further Reading
Source: https://www.forbes.com/sites/dereksaul/2023/02/28/stocks-post-subpar-february-amid-fears-of-higher-interest-rates-and-weak-earnings/