Monthly summary – February 2024
The positive momentum persisted into February, traditionally a challenging month for markets. Contrary to expectations, stock prices increased despite rising bond yields, catching many investors by surprise. Again, the US mega caps dominated trading and performance attribution with, for example, chipmaker Nvidia rallying after a stellar report to become the third company ever to reach a market cap of USD 2 trillion. Indeed, as the month progressed, the positive sentiment spread wider, reaching more sectors and even small and mid-cap stocks.
Investors ignored the delayed rate cuts
Better-than-expected economic data plus strong corporate earnings especially in the US, meant that investors overlooked the apparent postponing of central bank rate cuts. Going back to late last year, most investment banks envisioned cuts occurring already in March of this year. However, inflation numbers released in February dampened those expectations, pushing possible dates back to May or even later in the summer. Additionally, even though still an outlier opinion, some analysts said that the economy (again especially in the US) was so strong that cuts, if any, would happen even further into the future.
Choosing between a healthy economy and thus earnings growth, or lowered rates, it was obvious that investors favored the former, at least as long as the price of money was stable and expected to ultimately fall.
Worsened geopolitical situation
Geopolitical tensions worsened in February. In Ukraine, Russian forces took the town of Avdiivka in Donetsk after a long siege, making the Ukrainian army, who were outnumbered and in dire need of more western support, to retreat. French president, Emmanuel Macron, suggested that western troops at some point could be deployed in Ukraine, a statement which was seen as an escalation by the Kremlin.
Also, the war in Gaza continued unabated with Israeli forces moving further down towards the southern part of the strip, prompting increased criticism from governments and citizens around the world. Despite Israel being urged to halt the fighting, prospects for a cease-fire were still distant, even though negotiations continued. Leaders of Hamas in Gaza and Fatah in the West Bank assembled in Moscow to try to forge a common stance against Israel.
Local measures bolstered Chinese markets
Having underperformed the world equity indices for years, Chinese stocks rallied in February after the authorities introduced several measures to bolster the market, including a ban on short selling and certain quant strategies.
In Japan, the world’s best performing major market so far this year, the benchmark index finally surpassed its all-time high reached back in 1989.
Fourth consecutive monthly rise for the world index
The strong start to 2024 thus continued in February and the world index rose for a fourth consecutive month, albeit again with differences depending on investors’ base currency. Apart from utilities, all global sectors rose, led by consumer discretionary and information technology, while consumer staples and energy trailed the market. The same went for the regions, with Hong Kong and Nasdaq at the forefront while Europe lagged the world index.
OUTLOOK
In February, the market experienced further expansion where an increased number of stocks participated. Particularly, the biotechnology sector, measured as XBI, showed a strong upward trend given a long phase of consolidation. Recent data indicate strong healthcare productivity. February underlined the potential for 2024 to be a strong year for the healthcare sector.
Stock markets compensated by economic growth
Inflation is not on its way down as quickly as some had hoped but the economy is growing rapidly which compensates stock markets, and risk appetite is increasing. Europe is still behind, but our estimation is that it is only a matter of time before Europe turns around too.
The consumer price index in the US indicates continued rising housing costs but much of this appears to be built in lags and seasonal patterns. If housing costs rise more slowly in the spring, the US central bank (the Fed) will be close to its target and can start lowering interest rates. Our assessment is that the American stock market should remain strong if investors continue to believe that rates will come down in the summer at the latest, and if the first quarter’s reports in April-May show that the strong economy has provided decent profit growth. A possible weakening of the labor market during the spring could create new concerns about the economy, however we do not see strong signs of this today.
Optimistic sentiment
A series of data and phenomena can still go wrong, but the current optimism is fairly well anchored in profits, macro- and stock market statistics. The healthcare sector is generally strong and has the necessary prerequisites to deliver in 2024. Insurance is really the only area where, at present, there is broader uncertainty. The sector has undeniably started the year strongly and, as previously stated, the conditions exist for it to continue doing so during the year ahead. The proof is in the pudding.