Nasdaq and S&P Log Worst Month Since March
The Nasdaq and S&P 500 ended February with their sharpest monthly declines in nearly a year, with the S&P 500 falling 0.4% to 6,879 on Friday. UBS downgraded its outlook on U.S. equities, citing fading corporate buybacks and dollar risks. Hot producer price inflation data and AI market jitters fueled the selloff.
The February slide represented a significant market rotation, with the Nasdaq Composite dropping about 2.5% and the S&P 500 falling 1.42% for the month. While the tech-heavy Nasdaq and large-cap S&P 500 faltered, the blue-chip Dow Jones Industrial Average held up better, remaining roughly flat for February. A key catalyst for the sell-off was the January Producer Price Index, which revealed wholesale prices rose 0.5%, exceeding expectations. More concerning for investors was the core PPI, which excludes volatile food and energy prices, surging by 0.8%—nearly triple the forecast. This data fueled fears that the Federal Reserve would maintain higher interest rates for a longer period to combat persistent inflation. Concerns over the disruptive power of artificial intelligence also weighed on the technology sector. Even a strong earnings report from chipmaker Nvidia was met with heavy selling pressure, signaling shaky sentiment around AI-related valuations. The iShares Expanded Tech-Software Sector ETF (IGV) ended February down by over 10% as major software companies like Oracle, Microsoft, and Salesforce saw significant declines. While technology and financial stocks lagged, other sectors showed strength, indicating a rotation of investment within the market. Energy, materials, and consumer staples were among the outperformers for the month. This shift suggests that while enthusiasm for the AI-driven rally may be cooling, investors are finding opportunities in other areas of the economy. Geopolitical tensions also contributed to market jitters, with rising conflict risk in the Middle East pushing oil prices higher. The collapse of U.K. mortgage lender Market Financial Solutions sparked some fears of contagion in the financial sector, further dampening risk appetite. Despite the monthly downturn, some market segments performed well, particularly outside of U.S. large-cap stocks. The Vanguard FTSE All-World Ex-US ETF (VEU) surged 5% in February. In the bond market, falling Treasury rates led to a nearly 2% total return for the iShares US Aggregate Bond ETF (AGG) as investors sought safer assets.
