NEW YORK (AP) — After two months of trading, the stock market is back where it started.
The
Standard & Poor’s 500 index rose 4.3 percent in February, the
biggest gain since October 2013, helped by strong corporate earnings and
a Federal Reserve that seems to have Wall Street’s back at every turn.
But the rise in February must be taken in the context that investors
spent the month making up the ground they lost in January.
"February
looked a lot like January, just moving in the opposite direction," said
Scott Clemons, chief investment strategist with Brown Brothers Harriman
Wealth Management.
Investors are also now staring at a stock
market, while numbers-wise is basically where it was on Jan. 1, that is a
lot more defensive than it was two months ago.
Utilities and
health care stocks — two traditional "safe" places for investors because
of their low volatility and higher-than-average dividends — are the
biggest gainers so far this year. Utilities are up 5.7 percent in 2014
and health care is up 6.6 percent.
Investor caution was also
evident in the bond market, which has done reasonably well in the last
two months. The yield on the benchmark U.S. 10-year Treasury note has
fallen from 2.97 percent to 2.65 percent in the last two months as
investors returned to the relative safety of government debt. The
Barclays U.S. Aggregate bond index, which tracks a broad mix of
corporate and government bonds, is up 1.6 percent this year.
"The
sentiment now is, ‘bonds may not be as bad as I originally thought,’"
said Michael Fredericks, a portfolio manager of the Multi-Asset Income
Fund at Blackrock.
February’s rise came in spite of several economic reports that showed the U.S. economy slowed in the
previous month.
It
started with the January jobs report, which showed employers only
created 113,000 jobs that month. It was far fewer than economists had
expected. Other economic reports told a similar story. Consumer
confidence, manufacturing and the housing market all fell sharply in
January.
Investors blamed the weather, and rightly so. Many
companies, particularly retailers, said winter storms of the past two
months dramatically impacted their business. Macy’s said that at one
time in January, 30 percent of its stores were closed because of
inclement weather.
Home Depot had a similar story.
"We don’t
like to use weather as an excuse but we think we probably lost $100
million in the month of January," Home Depot’s chief financial officer,
Carol Tome, said in a conference call with investors this week. "Atlanta
was frozen, for example. It was tough here."
Even with the
economic concerns, investors were able to set aside the volatility of
January for three reasons, market watchers said.
First, corporate
earnings for the fourth quarter overall turned out to be pretty good.
Earnings at companies in the S&P 500 index grew 8.5 percent over the
same period last year, according to FactSet. Revenue growth also picked
up, albeit slightly.
The Federal Reserve, once again, also came
to the market’s side. Janet Yellen, who in February took over the role
as chair of the Federal Reserve, reaffirmed that the central bank plans
to keep its market-friendly, low interest rate policies in place for the
foreseeable future.
Lastly, weather, by its very nature, is temporary.
Spring
will come, at some point, and the winter storms that have kept
businesses closed and consumers away from stores will fade, investors
say. All that pent-up demand will help the economy recover some of the
ground lost in January and February.
"I think 70 percent, 80
percent, of the weakness we saw in January and February was weather
related and we will pick up strength in the spring thaw," said Bob Doll,
chief equity strategist at Nuveen Asset Management.
Investors will have less information to work with in March than they did in February.
Earnings
season is basically over. Of the companies in the S&P 500 index,
484 have reported their results, as have all 30 members of the Dow, so
investors won’t have any corporate earnings news to respond to.
In
the absence of company news, investors would typically look to the
steady stream of economic data to find direction. However the severe
winter weather of last two months is likely to make the upcoming
economic reports even more difficult to interpret.
"You’re going
to be able to put on spin on any report: ‘well that better than it
should have been’ or ‘well, it was the weather,’" Clemons said. "We’ll
get more trustworthy numbers in April."
On Friday, the S&P 500
rose 5.16 points, or 0.3 percent, to 1,859.45. It was the second
all-time closing high for the S&P 500 in a row. The S&P 500 is
now up 0.6 percent for the year.
The Dow Jones industrial average
rose 49.06 points, or 0.3 percent, to 16,321.76.
The Nasdaq composite
lost 10.81 points, or 0.3 percent, to 4,308.12.
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