S&P 500 performance for February (-3.14%) followed January (-5.67%) on the downside, while the market continued to adjust (reallocate) itself for an expected slower (and more expensive) economy. While the Ukraine situation dominated the moral headlines and wreaked havoc on the market, with a knee-jerk reaction to an expected event, it was the economy that ruled the market. And for February, the economy was defined by increasing inflation stats (7.5% CPI, 9.7% PPI, and 6.1% PCE) and oil's return to USD 100 (last seen in July 2014). More 0.25% interest rate increases are expected at the FOMC meeting on March 15-16, 2022, with a few expecting it to grow to 0.50% (and quantitative tightening to start soon after the meeting). Given current and expected stats, -3.14% (-8.81% from the Jan. 3, 2022, closing high) may not seem bad after a 114% rise from the March 23, 2020, low (41.65% from the pre-COVID-19 Feb. 19, 2020, closing high), especially since there have been no corrections since the March 2020 low. What was keeping the market up and countering the fears around inflation and the Russia-Ukraine conflict, was strong U.S. economic fundamentals) that point to growth, as demonstrated by wealth (home and equity values), consumer spending, employment (4.0% unemployment) and labor demand, wage growth (5.7%), and expected record growth in earnings (8.7% for 2022 and 9.6% for 2023). Inflows continued to play a strong supporting role, with a returning cameo appearance from “buy the dips". As for March, developing issues around the Russia-Ukraine conflict could have a major impact, and any escalation would affect the markets. At this point, however, the market appears to have accepted the situation (even as it continues to refine its reallocations) and focused on “home" issues, leaving inflation costs and its impact on growth as potentially the major March issues (meaning that issues that can demonstrate their ability to cope with higher prices should do better).
Historically, February gains 53.8% of the time, with an average gain of 2.88% for the up months, a 3.46% average decrease for the down months, and an overall average decrease of 0.05%. For February 2022, the S&P 500 was down 3.14%, trading in correction territory but not closing there. In the forward March month, historically, the index posts gains 60.6% of the time, with an average gain of 3.34% for the up months, a 3.85% average decrease for the down months, and an overall average increase of 0.51%.
The S&P 500 closed at 4,373.94, down 3.14% (-2.99% with dividends) from last month's 4,515.55 close, when the index was down 5.26% (-5.17%), and from December's close of 4,766.18, when it was up 4.36% (4.48%). The YTD return was -8.23% (-8.01%), the three-month return was -4.23% (-3.89%), and the one-year return was 14.77% (16.39%), with the index up 29.17% (33.40%) from its pre-COVID 19 Feb. 19, 2020, closing high. The Dow® ended the month at 33,892.60, down 3.53% (-3.29% with dividends) from last month's close of 35,131.86, when it was down 3.32% (-3.24%) from the prior month's close of 36,338.30, when it was up 5.38% (5.53%). The YTD was down 6.73% (-6.43%), the three-month return was down 1.71% (-1.25%), and the one-year return was up 9.57% (11.59%).
Hopefully, the saying, "So goes January, so goes the year," is not true, but for this year, “So goes January, so goes February" was. After the new year opened with a new closing high (Jan. 3. 2022; 4,796.56), it was all downhill, both for January (-5.26%) and February (-3.14%). The S&P 500 switched from 15 months of posting at least one new closing high (starting November 2020) to posting its first official correction (Feb. 23, 2022; 4,225.50, -11.91%) since Feb. 27, 2020, which ended as a bear market, with a 33.93% decline.
Last month's loss was blamed mostly on inflation, as it overtook COVID-19 on the concern list. For most of this month, global conflict replaced inflation (through the correction entry), but inflation (costs of materials, labor, pass-throughs, etc.) fought back, as month's end found it slightly beating out secondplace global conflict, with COVID-19 a distant third. Going into March, inflation appears to hold the edge for concern, as the Fed's March 15-16, 2022, meeting is expected to take the winner's 0.25% increase over the feared 0.50%.
February posted no new S&P 500 closing highs, an event not seen since October 2020, as momentum stopped. The index closed up 29.17% (33.40%) from its pre-COVID-19 Feb. 19, 2020, closing high (90 new closing highs). Since Biden won the Nov. 3, 2020, U.S. election, the market has gained 29.82% (32.38%), with 69 closing highs since his Jan. 20, 2021, inauguration. The bull market was up 95.49% (101.48%) from the low on March 23, 2020. The index closed 8.81% lower than its Jan. 3, 2022, 4,796.56 closing high, and down 8.23% YTD.