NEW YORK – Despite the Dow Jones Industrial Average declining on Thursday, February’s final trading session, the major averages were headed toward a winning month, extending the market’s AI-fueled rally. Investors also digested a key inflation metric that met economist expectations along with fresh U.S. housing numbers.
The Dow slipped 25 points, or 0.1% on Thursday. The S&P 500 rose 0.2%, while the Nasdaq Composite added 0.4%. Thursday’s session capped off February trading and another positive month for Wall Street, with the Nasdaq leading the pack with a 5.2% gain. The S&P 500 jumped 4.6%, while the Dow added 1.8% in February. This marked the Dow’s first four-month winning streak since May 2021.
Data showed the Federal Reserve’s preferred measure of inflation, the core personal consumption expenditures price index, was stubbornly above the central bank’s 2% target in January, but at least didn’t exceed Wall Street forecasts. There were also signs that consumer spending remains robust.
The core PCE, which excludes volatile food and energy costs, increased 0.4% for the month and 2.8% from a year ago, matching Dow Jones estimates. Headline PCE, including food and energy prices, rose 0.3% monthly and 2.4% year-over-year, in line with forecasts.
“This morning’s data is a sigh of relief for bulls, who were worried inflation was going to reaccelerate and cause the Fed to put off rate hikes for a much longer time — or even worse, begin raising rates again,” said Independent Advisor Alliance chief investment officer Chris Zaccarelli. “At least for today, it should be all systems go and buyers should re-emerge.”
Personal income increased 1% month-over-month in January, well above the 0.3% gain forecast by economists. The healthy income growth indicates consumers still have spending power even if prices remain high.
Meanwhile, pending home sales posted a surprise 4.9% drop in January, much worse than the 2% increase projected by analysts, according to Dow Jones. The unexpected decline came amid fluctuations in mortgage rates.
New York Federal Reserve Bank President and CEO John Williams later moderated a discussion focusing on the economic outlook and monetary policy. Williams said the Fed must remain nimble in response to incoming data, particularly on inflation.
Stocks Making Notable Moves
Snowflake shares sank around 19% after the cloud software company announced the retirement of CEO Frank Slootman and provided disappointing product revenue guidance for next quarter.
Okta stock jumped nearly 23% after the digital identity management company reported better-than-expected quarterly results driven by strong sales of its identity cloud platform.
Hormel Foods shares gained over 13% after the maker of Spam, Applegate meats and other brands exceeded Wall Street’s fiscal first-quarter profit and revenue estimates. Hormel said it expects continued growth in its foodservice segment.
Monster Beverage shares rose around 5% after the energy drink maker reported strong January sales despite posting in-line adjusted earnings for the fourth quarter. Monster saw gross margin expansion in the quarter.
Chemours stock plunged more than 33% after the specialty chemicals company placed top executives on leave pending an internal accounting review, while also delaying its fourth-quarter earnings.
Market Breadth Improving
Global market breadth and narrowing credit spreads could pave the way towards 5,600 for the S&P 500 index, according to BofA Securities chief equity technical strategist Stephen Suttmeier. “The global advanced decline line of 73 country indices — the S&P is just one of them — continues to go to new highs. So at the index level, market breadth globally is solid,” Suttmeier said.
During Thursday’s session, 47 S&P 500 member stocks hit fresh 52-week highs, including:
- Airbnb
- JPMorgan
- Wells Fargo
- Motorola Solutions
- Advanced Micro Devices
- Accenture
- American Express
- Costco
- Home Depot
Bitcoin Drives Crypto Fund Flows
Bitcoin exchange-traded funds saw record inflows on Wednesday, nearly two months after first launching, according to JPMorgan. The bank estimated Bitcoin ETFs garnered $675 million in net purchases, contributing to the approximately $7.5 billion accumulated since inception.
“This was the largest single day of net sales for the group, as Grayscale’s GBTC outflows were relatively robust at $216 million on Wednesday,” said JPMorgan analyst Kenneth Worthington. The rise in Bitcoin’s price appears to be helping the new ETFs gain traction.
Summer Rate Cuts Still on Radar
Atlanta Fed President Raphael Bostic reiterated Thursday he expects the central bank to start lowering interest rates this summer despite high inflation readings. “They’ve come in higher than people hoped. But if you look over the long arc, the line is still going down. That’s an important thing to keep in mind,” Bostic stated. Though it’s premature to declare victory on inflation, Bostic expects rate cuts by mid-2023.
AI Software Leader Pops on Results
C3.ai stock surged over 20% after the artificial intelligence software firm posted better-than-expected fiscal third quarter results and growth momentum. C3.ai reported a smaller-than-forecast loss and revenue topping analyst estimates. Total revenues grew 17% year-over-year.
C3.ai CEO Thomas Siebel said demand for enterprise AI applications is “overwhelming” and the market opportunity has become much larger than anticipated. “The Enterprise AI market is on fire,” Siebel remarked. “We have been predicting for some years that the market for Enterprise AI would be quite large.”
Bottom Line
February was another winning month for Wall Street, capping a four-month rally despite lingering inflation concerns. Key benchmarks posted solid gains in February, powered by AI-driven optimism. While inflation remains elevated, the latest PCE data provided some relief that price pressures might be easing. Stocks appear poised to extend their ascent, though risks around inflation and Fed policy remain. Maintaining a diversified portfolio and prudent asset allocation is key for investors in these dynamic markets.
