iShares February Road Report: top advisor questions of the month

February gave us much to celebrate: Lunar New Year feasts, Valentine’s Day dates (and new charts!), the SPX closing above 5,000 for the first time ever, and an extra market day thanks to the leap year.

The month also added a few new cities to our travels: our team visited Cleveland, Minneapolis, Scottsdale, Philadelphia, and Toronto in February to meet with clients. Here are the top 3 questions we received during our trips:

January’s CPI printed hotter than expectations. While goods inflation was the good news, decreasing over the month, every major component of services ticked higher, an unwelcomed reversal from a recent string of softer reports.¹ The print sharply pared back forecasts for a March rate cut, and even pushed back expectations for a May cut, too.² The severe rate repricing aligns with our current base case: we expect 3-4 cuts over the course of the year, with the Fed beginning to ease in June. 

Despite the strength in this month’s data, it’s not unusual for January to be an outlier. The seasonal cocktail that fuels holiday spending tends to result in an economic hangover: spending cools and labor market data softens. We’ll also be watching key CPI components, such as changes in OER vs. rent inflation, which has swelled to its widest gap since the 90’s.³ January volatility keeps us wary of the month’s strong inflation data – yes, the figures surprised to the upside, but no, we don’t think one report moves the needle for the Fed.

Nvidia’s earnings marked the last of the tech juggernauts to report Q4 results, seemingly saving the best (of the best) for last. The Magnificent 7 cohort surprised to the upside this earnings season, and while AI-optimism and animal spirits contributed in part to outsized returns, the latest bout of sizeable beats proves solid fundamentals continue to underscore the Mag 7 names.

The broad market’s EPS delivery has outperformed consensus expectations by nearly 4%, buoyed largely by tech and tech-adjacent sectors as the main engines of earnings growth.⁴ This trend is slated to continue, with large cap growth earnings expectations far outpacing their large cap value counterparts for the year ahead: the S&P 500 Growth Index’s EPS growth forecast is 16.71%, compared to the S&P 500 Value Index’s 6.60%.⁵

Following a busy holiday season, retail sales fell 0.8% in January, substantially steeper than the 0.2% drop expected - ouch.⁶ But, like our cautionary inflation insights, we’re more focused on the trends rather than a single noisy print.

Although spending has slowed down since last year, broad signals point to a healthy consumer: mortgage rates are applying less pressure after leveling off from their recent highs, real wage growth remains positive, and the labor market remains tight amid steady normalization.⁷ And the consumer feels good: consumer sentiment edged higher in February, continuing a positive trend from December and January.⁸

While the record resilience we saw in 2023 may not materialize this year, February’s consumer data paints a picture of normalization – slowing, but solid.