February 2023 Recap

February 2023: A Reversal of Fortune for Financial Markets

After a strong January, February shifted sentiment for financial markets. Key themes for the month included:

Equity Market Pullback:

  • Major indices retreated after hopes for disinflation faded.
  • The S&P 500 lost 2.4%, the Dow Jones 4.2%, and the Nasdaq 1.1%.
  • Growth stocks outperformed value, and Information Technology was the only positive sector for the S&P 500.

Rising Interest Rates:

  • The Federal Reserve hiked rates by 0.25%, but stronger-than-expected economic data pushed market expectations for further hikes upward.
  • The yield on the 10-year U.S. Treasury note increased by 0.40% to 3.92%.

Economic Resilience:

  • Robust jobs data, stronger retail sales, and higher producer prices indicated economic resilience.
  • Consumer confidence, however, unexpectedly dropped, signaling potential concerns about the future.

Global Market Performance:

  • Developed markets like the MSCI EAFE fell 2.1%, while emerging markets like the MSCI EM declined 6.5%.

Other Notable Events:

  • February saw the appointment of Kazuo Ueda as the new Bank of Japan Governor, raising questions about the country’s monetary policy direction.
  • U.S. home prices continued their downward trend, marking the sixth consecutive month of decline.

Overall, February was a month of adjustment for financial markets. The rally fueled by disinflationary hopes gave way to concerns about higher interest rates and the sustainability of economic growth.

Week Ending 2/3/2023


US stocks rallied by 1.94%, while international stocks fell by 1.04%. Bonds were flat.

The US added 517,000 jobs in January, way above estimates of less than 200,000, and in the process, dropped the unemployment rate to 3.4%, a 53-year low. Over the past year, wages were up by 4.4%, down from a revised 4.8% in December.  The extra strong jobs report does not jive with other economic reports that show that consumer spending started to slow at the end of the year and that manufacturing activity declined. But new orders did increase, according to the Institute of Supply Management Business Activity Index, which increased to 60.4% from 45.2% in December. The Service Sector was also up, at 55.2 versus 49.2 in December.

The Fed raised its bench market interest rate to 4.75% from 4.5%. The strong jobs report led some investors to suspect that the Fed will continue for the time being on increasing rates and hold off cutting interest rates longer than expected.