Monthly Market Report: February 2024
Japanese Stock Market Surpasses 1989 Peak
Prepared by Brandon Yee, CFA, CAIA, and Thomas Connelly, CFA, CFP
DEVELOPED MARKETS
Developed Markets Rise
In the month of February, international developed stock markets returned 1.71%. Japan and the U.S. recorded returns of 3.00% and 5.32%, respectively. The U.K. and Pacific ex Japan lagged other markets for the month. International developed markets are up 14.01% over the past year. Japan’s Nikkei 225 index finally surpassed its 1989 peak. Executives of Japanese companies are placing increasing emphasis on shareholder returns.
EMERGING MARKETS
Emerging Markets Rebound
Broader emerging markets posted a 4.17% return for the month. China and Korea recorded returns of 8.39% and 7.36%, respectively. Brazil and Mexico lagged other markets for the month. Emerging markets are up 0.47% YTD and 8.73% over the past year. India’s economy continues to experience robust activity. China’s economy continues to be weighed down by weaker corporate capital expenditures and a shaky real estate sector. Near historic low valuations relative to the U.S. and international markets may help emerging market investors going forward.
GLOBAL SECTOR
Information Technology and Consumer Discretionary Outperform
Global information technology and consumer discretionary recorded returns of 6.24% and 8.31%, respectively, in February. Infrastructure and utilities lagged other sectors this month. Although the energy and materials sectors underperformed over the past year, as opposed to 2022, their medium-term fundamentals look attractive. Recessionary concerns are a short-term headwind.
DOMESTIC EQUITY FACTORS
Value Stocks Underperform
In February, value underperformed growth in the large-cap space and the small-cap space. Momentum recorded a return of 10.30%. Value stocks across the world continue to trade at large discounts relative to growth stocks. Forward earnings assumptions may be too optimistic for growth companies, particularly those in the information technology sector.
FOREIGN EQUITY FACTORS
Growth Stocks Outperform in International Markets
In the international developed markets, value underperformed growth in the large-cap space and small-cap space for the month. Momentum recorded a return of 4.46% while small-cap emerging market stocks posted a return of 3.75%. Small-cap and mid-cap emerging market stocks are up 16.38% over the past year.
LIQUIDITY PROVIDERS
Savers Benefitting from Higher Interest Rates
In February, the three-month Treasury bill index returned 0.41%. From the beginning of 2022 through the end of February 2024, the annualized interest rate on the 90-day Treasury bill increased from 0.08% to 5.45%. Savers and retirees are now getting paid much more interest. Real interest rates are positive with the CPI increasing by 3.11% over the past year through the end of January.
DISINFLATION DEFLATIONARY HEDGES
Long-Term Government Bonds Underperform
The returns of deflationary hedges were mixed for the month. The Bloomberg Barclays U.S. Agg Bond Index returned -1.41% for the month. Long-term government bonds recorded a return of -2.28% as interest rates increased. Catastrophe bonds continued their strong performance, returning 1.57% in February. Insurance-linked securities like catastrophe bonds are benefiting from higher premiums that insurance companies are demanding from buyers.
INFLATION SENSITIVE INVESTMENTS
WTI Crude Oil Rebounds
Inflation-sensitive investment returns were mixed for the month. WTI crude oil and MLPs were up 2.88% and 3.86%, respectively, in February. International real estate and U.S. natural gas were down for the month. The Bloomberg Commodity index posted a return of -1.47%. Gold bullion is down YTD but up 12.25% over the past year. As geopolitical risks increase and become more interconnected, gold bullion may serve as a safe haven. Emerging market central banks have been steady buyers of gold bullion in recent years.
WORLD CURRENCIES
U.S. Dollar Mixed Versus Other Currencies
Over the past three months, the U.S. dollar depreciated against the Israeli Shekel, Mexican Peso, and Indian Rupee. Over the past year, the U.S. dollar strengthened against the Japanese Yen, Australian dollar, and Chinese Yuan. The continuation of U.S. fiscal and trade deficits may weigh on the U.S. dollar in the medium-term to long-term. Gross federal debt to GDP stands at 120% and is forecasted to increase throughout the decade. In addition, the fiscal deficit is 6.19% of GDP at a time of economic expansion and low unemployment.
Brandon conducts investment due diligence for Versant Capital Management, and designs and implements tools and processes to support the firm’s research. His background in biology and finance help him to look at challenges from multiple angles, resulting in unique and well-rounded approaches and solutions.
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