Financial Market Roundup
Produced by Fifth Third's Investment Management Group

In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of February.

CENTRAL BANK
POLICIES

The Federal Open Market Committee (FOMC) met in early February and increased rates by 25 basis points, leaving the Fed Funds target to a range of 4.50%-4.75%. Fed Chair Jerome Powell reiterated his aim for policies that are “… sufficiently restrictive to return inflation to 2 percent overtime” and that he “… will stay the course until the Job is Done.”
 
The European Central Bank (ECB) also met in early February and increased rates by 50 basis points. In their subsequent press release it was noted that their aim is to have policies “that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target.” 

EQUITY
PERFORMANCE

Global equities fell in February. Domestically, the drop was driven by poor inflation reports. Specifically, consumer prices came in higher than expectations and producer input costs came in higher than expectations. As a result of these poor reports, during the month of February market expectations shifted towards additional hikes in 2023 and a much lower probability of rate cuts toward the end of the year.
 
Domestically, Q4 2022 earnings season is winding down with over 95% of the S&P 500 reporting their financial results. Although headline results were strong, with 68% of companies beating earnings estimates, more companies are lowering guidance for future earnings than raising guidance.

Looking at labor markets, tight labor conditions remain firmly entrenched with the unemployment rate at 3.4% and the gap between job openings vs job seekers remains at historic levels.

Looking at performance, the S&P 500 Index fell 2.5% in February. The blue-chip Dow Jones Industrial Average fell by 3.9%. The tech heavy NASDAQ Composite fell by 1.0%. International stocks were also lower with the MSCI All Country World Index of developing and developed market stocks down 2.8% in February. The MSCI Emerging Market Index fell by 6.5% in February. The MSCI EAFE Index of developed international equities was down 2.1% in February.

INTEREST RATES
AND GROWTH

On December 14th Specifically, investors digested worsening projections despite positive Q3 & Q4 2022 GDP figures of 2.6% and 3.5%. Specifically, investors digested worsening projections despite positive Q3 & Q4 2022 GDP figures of 2.6% and 3.5%.
 
During 2023, the US Treasury Yield Curve has had shorter maturities rising considerably more than longer maturities. In February, the Treasury Curve had all term points moving higher but with shorter- and medium-term maturities moving higher more than longer maturities. This movement of the curve expanded the current 2/10 inversion by 20 basis points. Specifically, the 10-year U.S. Treasury yield ended the month at 3.92% with the 2-year U.S. Treasury yield at 4.82% netting the current 2/10 inversion to 90 basis points, continuing to signal an economic slowdown.
 
Mortgage Rates moved higher in February as the Freddie Mac 30-year Primary Mortgage Market Survey rose 35 basis points from January 19th to February 23rd up to 6.50%