February Recap
The S&P 500 and Dow Jones Industrial Average both posted double-digit monthly declines in February. Lackluster corporate earnings and a sharp downward revision to fourth-quarter 2008 GDP, which declined 6.2 percent, show that the economy deteriorated much faster than previously thought. Still, policy decisions remained the primary force driving the market.
Attractive valuations and defensive reputation helped telecom stocks outperform other sectors. The technology sector was also a relative outperformer. Technology companies are viewed as having relatively solid balance sheets with good cash positions, which is certainly an attractive quality in this tight credit environment.
Again, the financial sector was the weakest performer in the S&P 500 as investors mulled over the possibility of some large banks becoming nationalized. There is still a great deal of uncertainty with regard to the government’s plan for troubled banks. The Federal Reserve, Treasury and White House all tried to squash nationalization rumors, but there is a growing feeling that at least temporary nationalization may be necessary.
Despite a pick up in merger and acquisition activity, the historically defensive healthcare sector felt some pain after the Centers for Medicare and Medicaid Services said private Medicare plans would see a modest 0.5 percent increase in the 2010 fiscal year – a growth rate well below industry estimates of 2 percent to 4 percent. Also hurting the sector was fears that President Obama’s reform plans may carve into the profits of drug makers, medical devices and insurers.
Given the poor performance of the financial and healthcare sectors, it is not a big surprise that growth outperformed value. More surprising was the fact that emerging markets were the best performing asset class this month. The worst asset class was REITs, with the Vanguard index tracking REITs losing over 20 percent this month.
Record issuance during the month of February drove prices down and yields up in the Treasury market. The market weathered the large increase in supply very well, thanks to the large flight-to-safety trade. The benchmark curve was 11 basis points steeper for the month as the longer end of the curve underperformed the shorter.
Quick Hits
- Buffett Says Economy ‘In Shambles,’ Promises Best Days Ahead
- ‘Leave It to Beaver’ Savings Lifts U.S. Bond Holdings
- Decremental? Fitting Word for Ugly Times
Peter Lazaroff, Junior Analyst
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