Market Update
Stocks ended February on a high note as each of the benchmark indexes closed up. The Nasdaq and the S&P 500 notched all-time highs, as tech shares, particularly those linked to AI, helped drive stocks. Inflation data released at the end of the month, was in line with expectations, which also supported stocks. February's gains marked the fourth straight month of advances for the S&P 500, the Dow, and the Nasdaq. For the year, the Nasdaq and the S&P 500 have risen about 7.0%, while the small caps of the Russell 2000 recouped losses from January.
Inflationary data showed price pressures remained marginally elevated, driven higher by rising prices for services. However, the rate of growth for the 12 months ended in February slowed, according to the personal consumption expenditures price index, which rose 2.4%, nearing the 2.0% target set by the Federal Reserve. The U.S. economy, as measured by gross domestic product, continued to show strength in the fourth quarter of 2023. Consumer spending was solid reflecting greater confidence that inflation is coming down leading to increased spending power, especially where incomes are also rising.
The most recent inflation data showed prices inched higher in January for the second straight month. Both the Consumer Price Index (CPI) and the personal consumption expenditures price index increased in January. However, the 12-month rate for the CPI was unchanged for the year ended in January, while the PCE price index declined 0.2 percentage point.
Bond yields gained as bond prices declined in January. Ten-year Treasury yields generally closed the month higher. The 2-year Treasury yield rose nearly 43.0 basis points to about 4.62% in February. The dollar inched higher against a basket of world currencies. Gold prices rode a topsy-turvy month, ultimately closing lower. Crude oil prices advanced in January on the heels of production cuts and shipping interruptions in the Middle East. The retail price of regular gasoline was $3.249 per gallon on February 26, $0.154 above the price a month earlier but $0.093 lower than a year ago.
Economic data throughout the first two months of the year has been generally solid. However, the upward movement of inflation cooled any expectations of the Federal Reserve lowering interest rates when it meets in March.
International Markets
Most countries continued to monitor inflationary pressures. Germany saw its rate of price increases slow to 2.5% in February, down from 2.9% in the previous month and more than market expectations. Elsewhere, Canada's annual inflation rate fell from 3.4% to 2.9%, the Eurozone saw inflation tick down from 2.9% to 2.8%, while the rate of inflation in the United Kingdom remained unchanged at 4.0%. Japan's consumer prices rose 2.2% for the 12 months ended in January, the slowest pace of growth since March 2022. For February, the STOXX Europe 600 Index rose 2.4%; the United Kingdom's FTSE gained 0.4%; Japan's Nikkei 225 Index gained 8.8%; and China's Shanghai Composite Index rose 8.8%.
