The S&P 500 Index, after a remarkable 20% rally since October, faces challenges as February, known for historical stock market volatility, unfolds. The recent reality check in big-tech earnings, fading speculation on Federal Reserve easing, and elevated valuations reminiscent of the dot-com bubble are causes for concern.
February, historically the third-worst month for the S&P 500 in the last 30 years, adds to worries. Some optimistic investors fear that the current enthusiasm, reflected in the highest bulls-to-bears ratio since mid-2021, signals a contrarian downturn.
Despite a strong start in February, concerns linger. The “rah-rah” mentality in the market, fueled by unrealistic expectations of Fed easing, prompts warnings. Solid earnings from Meta Platforms Inc. and Amazon.com Inc. boosted the market, but disappointments from Microsoft Corp., Alphabet Inc.’s Google, and Advanced Micro Devices Inc. raised doubts.
For skeptics, signals from the Fed, especially after a blockbuster jobs report, heighten anxiety. The latest Deutsche Bank AG data indicates elevated equity positioning, raising questions about who’s left to buy after a frenzied pace of stock purchases in the preceding months.
Nancy Tengler, CIO at Laffer Tengler Investments, hopes for a correction to invest money in stocks like Palo Alto Networks Inc., Microsoft, and Amazon. Meanwhile, Nick Giacoumakis at NEIRG Wealth holds megacap tech stocks but refrains from adding due to lofty valuations.
The Magnificent Seven companies (Apple Inc., Alphabet, Amazon, Meta, Microsoft, Nvidia Corp., and Tesla Inc.) carry a 33% premium to the index in forward price-to-earnings. Despite concerns, sentiment may stay positive for weeks or months before a significant drop, as seen in 2021.
