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The inventory markets completed February simply as they started: with good points, leading to a document month for the main benchmarks.
Most notably, the Nasdaq Composite closed at 16,092 on Feb. 29, marking an all-time closing excessive for the index. The earlier closing excessive was on Nov. 19, 2021 at 16,057. The index had since dropped some 36% — all the best way right down to 10,231 on Dec. 28, 2022 — but it surely has now gained all of it again. In February alone, the Nasdaq climbed 6.1%, making it one of the best February since 2015. 12 months thus far, the Nasdaq is up 7.2%.
The S&P 500 additionally completed February with a brand new document, leaping 0.5% on the day to shut at an all-time excessive of 5,096. The big-cap benchmark completed February up 5.2%, making this one of the best February for the S&P 500 since 2015. As of Feb. 29, the S&P was up 6.8% YTD.
Whereas the Dow Jones Industrial Common didn’t shut February at a document stage, it did set an all-time excessive throughout the month. The Dow closed Thursday at 38,996 — up 0.1% for the day to finish the month up 2.2%. It additionally set a closing document of 39,131 on Feb. 23. The Dow is now up 3.5% YTD.
To not pass over the small caps, however the Russell 2000 additionally had month, up 5.5% in February to shut at 2,055 on Feb. 29. The Russell 2000 is up by about 1.4% YTD.
NVIDIA, Meta amongst high shares in February
As standard, February was the center of earnings season. The month’s returns have been buoyed by experiences from a lot of the Magnificent Seven shares, together with NVIDIA (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META), which have been two of the 4 finest performers on the S&P 500 and two of the highest three on the Nasdaq in February.
NVIDIA noticed its inventory value surge about 31% in February, rising sharply after the corporate publish document fourth-quarter earnings on Feb. 21. It additionally had a bullish outlook for the primary quarter of 2024, with income anticipated to set a brand new document of $24 billion, up from $22 billion in This autumn. After returning 239% in 2023, NVIDIA inventory is up some 62% in 2024 yr thus far.
Meta Platforms was one other large gainer final month, notching a February return of 28%. The corporate posted its fourth-quarter earnings outcomes on Feb. 1, reporting a 25% improve in income with web revenue that tripled yr over yr.
A significant component was a cost-cutting initiative that resulted in an 8% drop in bills. The report was additionally notable for the truth that Meta supplied its first-ever dividend, a 50-cent-per-share payout to buyers. Meta is up by about 41% YTD after returning 194% in 2023.
Nonetheless, one of the best performer on the S&P 500 and the Nasdaq in February was Constellation Power (NASDAQ:CEG). The inventory gained 37% in February, with most of these good points coming after it launched its fourth-quarter earnings outcomes on Feb. 27.
The power firm, which is the biggest producer of carbon-free power, reported blended ends in the fourth quarter, lacking estimates for earnings however beating on income. Nonetheless, Constellation Power’s inventory extra seemingly surged on its earnings steerage for 2024, which was higher than analysts had anticipated and led to a slew of price-target upgrades.
Is the market overvalued?
Now that the main benchmarks are all at or close to all-time highs and have erased the losses from the late 2021 and 2022 bear market, the place do issues go from right here? Is the market due for a correction?
That’s arduous to know, however one of many indicators to observe is the Shiller P/E ratio, also referred to as the cyclically adjusted price-to-earnings (CAPE) ratio. This ratio gauges the valuation of the S&P 500 primarily based on the common inflation-adjusted earnings over the previous 10 years, providing a longer-term view than the everyday P/E ratio.
The Shiller P/E ratio at present sits at 34, which is increased than regular. The long-term median Shiller P/E is about 16, however over the previous 10 years, it has predominantly hovered within the mid-to-high-20s vary. In March 2020, it dropped to 24, and simply earlier than the markets crashed in November 2021, it was at 38. Thus, at 34, it’s not but as excessive because it was in November 2021, but it surely bears watching.
The common 12-month trailing P/E ratio of the S&P 500 is 23, which continues to be in a reasonably cheap vary, though it’s up from 17 a yr in the past. Nonetheless, the P/E ratio of the Nasdaq 100 has crept as much as 34 from 24 a yr in the past.
This means that the markets are operating a bit scorching proper now, particularly the Nasdaq. Buyers ought to regulate valuations, significantly amongst expertise shares, and be cautious with people who have valuations effectively outdoors their regular ranges.
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