“March”ing Higher
March Onward:
As discussed last week, we exited February oversold on the charts having navigated quite a normal weak February in the S&P500. And? Global equity markets had a strong week last week ending higher across the board. Equity markets rebounded on the week amid relative calm on the economic data and monetary policy fronts. The markets continue to adhere to a very normal 3rd-year election cycle playbook seasonally speaking.
The S&P 500 rose +1.9%, led by materials, communication services and industrials. Defensive industries, the leaders in 2022, like consumer staples, utilities and health care were laggards once again. International markets were also strong with the German DAX up +2.4% leading the way higher, while Canada rose 1.8%.
The materials sector had the largest increase last week, up +4%, followed by increases of +3.3% both in comm services and industrials. Two groups dropped on the week, utilities -0.7% and consumer staples down -0.4%.
Investors got hopeful data last Friday. Two reports showed US services sector activity was stronger than projected in February. The ISM purchasing managers’ index for February came in higher than the consensus estimate and showed a second consecutive month of growth. Meanwhile, services PMI gauge for February ended a seven-month contraction and beat consensus estimates.
February’s decline in stocks pulled the S&P 500 down to its 200-day moving average, where it found support. At the same time, the 50-day average moved above the 200-day in a bullish crossover. Fundamentally, equities continue to digest higher interest rates. Valuations have compressed to account for higher neutral level of rates than investors been used to over the past decade.
The S&P500 ended the week at 4,045, up from prior week’s closing level of 3,970.
Last Tuesday, the S&P500 finished February with a -2.6% monthly loss as investors worried about the impacts of inflation and interest rate increases on the economy. Retailers including Home Depot (HD) and Walmart (WMT) issued weaker-than-expected 2023 earnings guidance.
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