Key Highlights
- The S&P 500® was down 2.61% in February, bringing its YTD return to 3.40%.
- The Dow Jones Industrial Average® fell 4.19% for the month and was down 1.48% YTD.
- The S&P MidCap 400® decreased 1.95% for the month, bringing its YTD return to 7.01%.
- The S&P SmallCap 600® was down 1.35% in February and had a YTD return of 7.92%.

Market Snapshot
February was no cupid; rather, it was more of a blind date, with the market not knowing what it was getting into. Specifically, the market re-evaluated the decreasing speed of inflation, and therefore the need for the FOMC to continue to increase interest rates (as well as the potential of a 0.50% increase) and the time period it needed to keep them higher. For February, the S&P 500 posted a 2.61% decline, after January's broad 6.18% gain and December's broad 5.90% decline (and an uplifting 5.38% in November), which left the three-month period down 2.69%; however, the index was up 3.40%YTD.
The S&P 500 started February up 2.53% from where it left off in January, as the last of the of FOMO (fear of missing out) money propped up the market. Reports continued to show slower inflation, but the market’s interpretation then started to focus in on the slow speed of the inflationary decline and the divergence between that rate and the Fed’s target rate, with stock prices struggling to stay positive, as the data started to imply the need for higher interest rates for a longer period. The turnaround point appeared to have come on Feb. 21, when both Home Depot (HD) and Wal-Mart (WMT) gave cautious outlooks due to consumer spending (with Wal-Mart seeing higher sales for groceries, which have lower margins); the market then added a slower economy to potentially stubborn inflation to post the worst day of the year for the S&P 500 (-2.00%, with the year only being 29 trading days old at that point). Concern continued to grow, as the market came to grips with a lower economic outlook, a slower decline in inflation and the realization that the FOMC will most likely be increasing rates at least three more times (March, May and June), with the March 21-22 expected increase of 0.25% (futures give it a 77% chance; it was 85% last month) potentially being 0.50% (23%, which was barely viable last month). Prices declined, and the S&P 500 went into the red (although volume wasn’t as convincing), while interest rates increased, with the U.S. one-year Treasury Bond over 5%, giving all investments a run for their money. The S&P 500 ended the month down 2.61%, up 3.40% YTD and down 17.23% from its Jan. 3, 2022, closing high.
In the background was Q4 2022 earnings, which, with 97.1% of market value reported, were tailing off; 480 issues have reported, with 323 (67.3%) of them beating on earnings and 311 of 476 (65.3%) beating on sales. Q4 2022 is expected to be down 1.7% from Q3 2022 earnings and down 12.7% over Q4 2021, as sales increased 2.8% over Q3 2022 (up 8.4% over Q4 2021) and are setting a new record. Companies were able to pass along a good part of their cost increases for the quarter, which does not appear to be extending into Q1 2023. Operating margins for Q4 2022 were expected to be 10.80%, down from 11.28% in Q3 2022 (the average since 1993 was 8.29%, and the record is 13.54% in Q2 2021). Talk of Q1 2023 started to pick up, although estimates have been declining (down 5.4% from year-end 2022) and are expected to be up 2.0% from Q4 2022 (the second half of 2023 has held its level), which could easily turn into a down quarter. At this point, earnings (and cash flow) are second only to the Fed meeting (March 21-22, 2023), with significant economic data expected before that, including the employment report on March 10, when many expect a downward revision of last month’s 517,000 level.
The S&P 500 closed at 3,970.15, down 2.61% (-2.44% with dividends) from last month's close of 4,076.60, when it was up 6.18% (6.28%) from the prior month's close of 3,839.50 (-5.90%, -5.76). The index was up 3.40% YTD (3.69%), the three-month period posted a decline of 2.69% (-2.28%) and the one-year return was -9.23% (-7.69%). The Dow® ended the month at 32,656.70, down 4.19% (-3.94% with dividends) from last month's close of 34,086.04, when it was up 2.83% (2.93%) from the prior month's close of 33,203.93 (-4.17%, -4.09%). The Dow was down 8.08% from its Jan. 4, 2022, closing high (of 36,799.65). The YTD return was -1.48% (-1.13%), the three-month return was -5.59% (-5.18%), the one-year return was -3.65% (-1.59%) and the 2022 return was -8.78% (-6.86%).