'US Stock Market Hits Consecutive Records, Will the February Rally Pause?'

Traditional February Bear Market... Interest Rate Cut Timing Also Delayed
Big Tech's 'Surprise Earnings' Boosts Stock Market Rally Optimism

The U.S. New York stock market, which has risen to an all-time high, is expected to take a breather in February, traditionally a seasonally weak month. The stock prices of big tech companies, known as the 'Magnificent 7,' are already high, and the expected timing of the Federal Reserve's (Fed) rate cuts has been pushed back, raising caution against excessive optimism. However, there is also a coexistence of expectations that the stock market's upward momentum is considerable, as big tech companies have recorded 'earnings surprises.'

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On the 4th (local time), Bloomberg analyzed the S&P 500 index's trends over the past 30 years and found that February ranks as the third-lowest month historically in terms of returns, following September and August.

The S&P 500 index has declined in February 14 times over the past 30 years. About half of those instances were bear markets. Typically, stock prices rise in early February, but investors tend to realize profits around mid-February, marking the end of a bull market.

However, with the recent New York stock market hitting record highs, many investors are relying on optimism that the bull market will continue in February. On the 2nd, the S&P 500 index rose 1.07%, setting a new record high again. The Dow Jones Industrial Average also rose 0.35%, reaching an all-time high. According to a survey by Yadeni Research conducted on investors in the last week of January regarding future market outlooks, the ratio of bullish to bearish sentiment soared to its highest level since mid-2021.

Some express concerns that such optimism might actually signal that the market has entered an overbought zone. Despite various factors that could cause the market to decline, it is pointed out that the market is ignoring these risks.

After the Fed held the benchmark interest rate steady at 5.25-5.5% for the fourth consecutive time following the Federal Open Market Committee (FOMC) regular meeting on the 31st of last month, Fed Chair Jerome Powell dismissed expectations of a rate cut in March. The U.S. employment data, which seemed to be cooling, has been fluctuating. According to the January employment report released by the U.S. Department of Labor on the 2nd, nonfarm payrolls increased by 353,000 compared to the previous month. This is the largest increase in a year since January last year (482,000) and nearly double the expert forecast (185,000).

Although expectations for an early rate cut are slowing, the big tech stocks that have benefited the most are already priced quite high. The forward 12-month price-to-earnings ratio (PER) of the 'Magnificent 7'?Apple, Alphabet, Amazon, Meta, Microsoft (MS), Nvidia, and Tesla?is about 35 times, far exceeding the S&P 500 PER of 20 times.

Nick Giakoumakis, president of NEIRG Asset Management, said, "There is a 'rah-rah' crowd psychology in the stock market," adding, "Some traders are intoxicated with their own wine, betting that the Fed will implement six rate cuts starting in March this year." He warned, "They are completely unrealistic. If you continue to buy big tech stocks at the current (price) level, you will face problems."

According to the Chicago Mercantile Exchange (CME) FedWatch, the current interest rate futures market reflects nearly a 94% probability that the Fed will cut rates by at least 0.25 percentage points at the May FOMC meeting.

Jeffrey Hirsch, editor of stock analysis firm Stock Trader's Almanac, said, "Stocks are ready to fall soon," and predicted, "After the S&P 500 surpasses 5000 this month, it will drop 4% to the 4800 level."

However, there is still optimism that the rally so far has considerable staying power and that the upward trend will continue.

There are also forecasts that strong earnings from big tech will support the bull market. Meta, the parent company of Facebook, announced after market close on the 1st that it achieved a surprise earnings beat for the fourth quarter of last year and declared its first-ever dividend and share buyback program. On the following day, the 2nd, Meta's stock surged 20.3%. MS, Alphabet, Apple, and Amazon all reported results exceeding market expectations.

Sam Stovall, Chief Investment Officer (CIO) of CFRA Research, analyzed, "When the S&P 500 breaks an all-time high in January, there is a 74% chance it will set a new record in February as well," adding, "When the highest points are reached in both January and February, the annual return reached 15.8%."