Monthly Market Update — September 2021

Key Points

  • RECORD HIGHS ABOUND The S&P 500 has made 16 new all-time highs in 2024 through March 7th. However, it is not alone anymore in record territory. During February, the Nasdaq Composite, as well as European and Japanese stock indices made all-time highs. Even Gold and Bitcoin saw fresh record highs in the month.
  • RATE RESET RESUMES The market continues to reset expectations for the timing, magnitude, and number of rate cuts the Fed will deliver in 2024. The market is now pricing in four rate cuts in 2024, which is down from seven cuts priced in just two months ago, and cuts aren’t expected until June instead of March.
  • INFLATION RISING Data released during February showed inflation pressures resurfacing. Americans didn’t have to follow all the economic data showing a resurgence in inflation. They’ve seen it every day this year at the pump as gasoline prices have steadily risen and are now at their highest level since early November.
  • EMPLOYMENT FALLING The labor market has been one of the bastions of the U.S. economy, even with industrial and manufacturing activity bordering on recessionary levels. But now employment is showing some signs of softness. Payrolls data has consistently been revised downward, and ISM manufacturing and services employment data has been sliding. 
  • FACTORY ORDERS UNDERWHELM Consistent downward revisions are also showing up in U.S. Factory Orders. In 16 of the last 21 months, U.S. factory activity has drifted lower and has consistently been revised down after the initial release. Of the 16 revisions over the last 21 months, half of them were 0.3 percentage points or more.
  • FINANCIAL CONDITIONS EASE Why stocks would rally for the past four months in the midst of a questionable economic environment might have people puzzled. But the rise in stocks has coincided with one of the most rapid periods of financial condition easing in at least 40 years.   

Market Summary

Asset Class Total Returns

[Market Update] - Asset Class Total Returns Feb 2024 | The Retirement Planning Group

Source: Bloomberg, as of February 29, 2024. Performance figures are index total returns: US Bonds (Barclays US Aggregate Bond TR), US High Yield (Barclays US HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

For non-bond investors, February was a fairly good month. Unlike January, which was only positive for mega-cap U.S. equity and developed market non-U.S. stocks, February saw a broad and fairly robust advance. Like January, large cap U.S. and developed market equities were up, but they were not the only asset classes to gain, nor were they the leaders. The headline S&P 500 Index was up +5.3% for the month, but the small cap Russell 2000 Index climbed +5.7%. Still, it’s the large cap stocks that have most of the momentum behind them. The S&P has now been positive for four straight months now, it crossed the 5,000 price level for the first time, ended the month at all-time highs, and had its strongest two-month start of the year since 2019. Markets have been bolstered by better-than-expected fourth-quarter earnings and the strength in the artificial intelligence (AI) industry. All eleven S&P 500 sectors were positive for the month, led by Consumer Discretionary (+8.6%), while Utilities had the smallest gain (+0.5%).

Overseas, developed market international stocks (as measured by the MSCI EAFE Index) were up +1.8%, while the MSCI Emerging Markets Index was up +4.8%, thanks to a rebound in China coming off of 5-year lows. Not to be outdone, Europe and Japan, despite recessionary economies, also saw their stock markets move into record high territory. Non-U.S. equities have long lagged their U.S. counterparts and Morgan Stanley points out that valuations for non-U.S. equities recently reached a 20-year low relative to the S&P 500. 

In contrast, fixed income markets were down broadly, with the Bloomberg U.S. Aggregate Bond Index slipping -1.4% in February, following the -0.3% dip in January. Non-U.S. bonds (the Bloomberg Global Aggregate ex U.S. Bond Index) were down -1.2% after falling -2.3% in January. The U.S. dollar was up +0.9% in February after rising nearly +2% in January, providing a headwind for overseas bonds. But for fixed-income markets, it’s often rates that dictate the market action. And in February bonds came under pressure as investors continued to push out interest rate cut expectations further into 2024. The 10-year U.S. Treasury yield rose +34 basis points to close the month at 4.25%, its biggest monthly increase since October. The short end of the curve moved even more, with the 2-year U.S. Treasury yield popping +41 basis points to 4.62%, its largest monthly jump in yield since June 2023. January inflation data, released throughout February, was largely stronger than expected, which led investors to further reduce their expectations for the Federal Reserve to cut interest rates in 2024. We discuss this in more detail in the “Rate Reset Resumes” section down below.

Though economic data is reflecting a resurgence in inflationary pressure and a softness in factory activity, investors seem content that it remains resilient, and conventional wisdom continues to settle on the “soft landing” scenario in which the Fed can get inflation to its 2% target without incurring a recession. In February, the second reading of Q4-2023 Gross Domestic Product (GDP) was revised downward to +3.2% quarter-over-quarter annualized from +3.3%, primarily due to lower growth in investment while personal consumption expenditures and state and local government expenditures were revised higher. Home prices accelerated to their fastest pace (+6.1% year-over-year) since 2022, with single-family homes hitting record-high prices in major metro areas in December. Retail Sales in January posted their first monthly decline in ten months, falling -0.4% month-over-month, with only food and furniture-related sales experiencing growth. ISM manufacturing activity has contracted for 16 consecutive months, its third longest streak on record, but appears to be troughing and may be poised for a rebound. 

Outside of the market and macroeconomic environment, late in the month, Congressional leaders struck a last-minute deal to avert a partial government shutdown, reaching an agreement on six of the 12 funding bills that had been stalled for months. One set of federal agencies, including the Departments of Commerce, Energy, and Justice, will be temporarily funded through March 8, and the rest, including the Departments of Defense and Homeland Security, through March 22. “We are in agreement that Congress must work in a bipartisan manner to fund our government,” U.S. Senate and House leaders said in a joint statement.

[Market Update] - Market Snapshot Feb 2024 | The Retirement Planning Group

Source: Bloomberg. Data as of February 29, 2024.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Quick Takes


91 years ago, on March 4, in the midst of the Great Depression, Franklin D Roosevelt was inaugurated as President and attempted to strike a tone of optimism for a country badly in need of a boost, stating, “The only thing we have to fear is fear itself.” For investors the current picture couldn’t be more different. At the close of March 7, the S&P 500 made its 16th new all-time high in 2024. On March 1, the Nasdaq Composite also made a new all-time high for the first time since November 2021. Stock markets in Europe have also made new all-time highs recently, and on February 22, Japan made a new all-time high for the first time in 34 years. Even other asset classes like Gold and Bitcoin have made fresh record highs. It seems investors of all stripes are wildly optimistic. Main Street Americans may not share the wild enthusiasm (see “Consumer Confidence Wanes” below), but investors’ spirits are high, even considering the bevy of all-time highs. Bespoke Investment Group points out that, like the markets, investor sentiment has also pushed higher. As shown below, they found that bullish investor sentiment is currently 51.7%, according to the latest AAII Sentiment Survey. That’s slightly below the multi-year high of 52.9% on December 21st, but it’s higher than it typically is when the S&P 500 is at an all-time high, which has averaged 41.0% historically. Likewise, bearish investor sentiment is lower now, at 21.8%, under the 25.9% it has historically averaged at all-time highs. They also point out that other sentiment surveys are showing high levels of optimism. The Investors Intelligence survey saw its highest number of bulls since July 2021 and the NAAIM Exposure Index showed active investment managers added long exposure to equities in the most recent week. Bespoke puts all these sentiment measures together into their Bespoke Sentiment Composite, and it shows aggregate investor sentiment now ranks in the 98th percentile of all periods since data began in 2006, just below levels reached in December. Before that, the only periods with similarly elevated levels of sentiment were December 2010, December 2013, early 2015, around the new year of 2018, the end of 2020, and the spring of 2021. 

Overwhelmingly Bullish, Even for All Time Highs

AAII Sentiment at S&P 500 All Time Highs

[Market Update] - Overwhelmingly Bullish Feb 2024 | The Retirement Planning Group

Source: Bespoke Investment Group, American Association of Individual Investors (AAII).


The market continues to reset expectations for the timing, magnitude, and number of rate cuts the Fed will deliver in 2024. Below is an update from Bianco Research of market pricing for the probabilities of a Fed cut over the next four Fed policy meetings. The probability of a rate cut on March 20—the next Federal Open Markets Committee (FOMC) meeting—was effectively ended after the big January NFP payrolls report released on February 2nd. On February 13, the January Consumer Price Index (CPI) report was released and exceeded market expectations (i.e., inflation was running hotter than forecasted). That sent the May FOMC rate cut probability (the next FOMC meeting after March 20) under 50% and effectively ended the market pricing of a May cut. The market is now pricing in four rate cuts in 2024 (red line), which is down from seven cuts priced in just two months ago on January 12 (yellow line). This is the first time the market is in line with the Fed’s forecast of three cuts this year (blue line). For now, the market is pricing a probability for the first rate cut to come in June.

The market is finally aligned with the Fed for rate cuts

Odds for a rate cut has been pushed back to June

[Market Update] - Market is Finally Aligned Feb 2024 | The Retirement Planning Group

Source: CME Group, Bianco Research. As of March 2, 2024.


Data released during February showed inflation pressures resurfacing. Whether it was the Prices Paid by regional Federal Reserve survey data, Import Prices, Producer Prices (PPI), Consumer Prices (CPI), or the Fed’s preferred inflation measure, the Core Personal Consumption Expenditure (PCE) data, inflation was accelerating. But everyday Americans knew that without playing economist at home. For virtually all of 2024, gasoline prices have been steadily rising and are now at their highest level since early November. According to data from the American Automobile Association (AAA), the daily national average price for a gallon of regular unleaded gasoline has risen to $3.40. That’s still lower than the $3.80 reached in August and September of last year, and considerably lower than the brief spike to $5.00 per gallon in the summer of 2022. But with interest rates, mortgage rates, and insurance rates all higher now too, the rise in gasoline may further crimp consumption.

Inflation Pressures Reemerge

Daily National Average Gasoline Prices Regular Unleaded

[Market Update] - Inflation Pressures Reemerge Feb 2024 | The Retirement Planning Group

Source: Bloomberg, American Automobile Association (AAA).


Back in December, we discussed how 2023 was one of three of the worst years for downward revisions to U.S. job creation. Every month the Bureau of Labor Statistics releases the highly anticipated Employment Situation report that shows total Nonfarm Payrolls (NFP) job growth. 2023 saw a recurring pattern in the report in which the initial NFP jobs growth numbers were overestimated and subsequently revised downward. In all, NFP jobs were negatively revised in 10 of the 12 months during 2023. Just before going to press, we received the February NFP report, and it had a strong 275,000 payrolls increase for the month, higher than expectations for 200,000. But just as the case for most of 2023, the exceptionally strong initial release of 353,000 was revised down sharply to 229,000. And the December NFP was also further revised down by another 43,000. The NFP report also includes the Unemployment Rate, which crept up to 3.9% which is the highest since January of 2022. Like the NFP data, the Institute for Supply Management (ISM) survey data also corroborates that employment has weakened notably in recent months. The chart below from EPB Research shows the average of the employment subcomponent for the ISM Manufacturing Index and ISM Services Index. The chart is smoothed by four months to reduce the choppiness. The average of the employment sub-component of the ISM Manufacturing & ISM Services PMI has shown a steady decline over the past several months and is consistent with other employment data that supports a continued deceleration in broader employment variables. 

More employment data is pointing to softness

ISM Manufacturing Index and ISM Services Index employment subcomponents

[Market Update] - More Employment Data is Pointing to Softness Feb 2024 | The Retirement Planning Group

Source: EPB Research, Federal Reserve, BEA, BLS, Census Bureau, ISM.


Speaking of patterns for downward revisions, in the last 21 months, U.S. Factory Orders have been negatively revised 16 times. Like the employment data, for months U.S. factory activity has drifted lower and has consistently been revised down after the initial release. The factory order data is consistent with other manufacturing reports, such as Industrial Production and the ISM Manufacturing PMIs. For example, on February 2nd, the Census Bureau reported December Factory Orders of +0.2%, but on March 5th, with the January Factory Orders report, the December data was revised from the original +0.2% to -0.3%. That’s quite a revision in both directions, from positive to negative, and in magnitude, a -0.5 percentage point revision on just an originally reported +0.2 percentage point gain. As seen in the chart below, the December revision wasn’t an anomaly. Of the 16 revisions over the last 21 months, half of them were 0.3 percentage points or greater. 

Worse than originally reported

U.S. Factory Orders original reported number minus revised number

[Market Update] - Worse than Originally Reported Feb 2024 | The Retirement Planning Group

Source: Bloomberg.


The Conference Board’s Consumer Confidence Index retreated to 106.7 in February from a six-month high of 110.9 the prior month, which was revised sharply lower from the 114.8 originally reported. That marked the biggest downward revision since February 2022. It also badly missed expectations for 115. The Present Situation gauge fell to 147.2 from 154.9 the prior month (revised down from 161.3). The Expectations gauge — which reflects consumers’ six-month outlook — fell to 79.8 from 81.5 (revised down from 83.8). Below the 80 mark on the expectations index often signals a recession within the next year. In good times, the index can top 120 or more. Less than 15% of consumers think business conditions will be better in six months. Weakening consumer sentiment was broad-based across income groups and across age demographics, but consumers younger than 35 and older than 54 saw the greatest deterioration in confidence.

Consumer confidence falls for the first time in four months

Conference Board Consumer Confidence and 6-Month Expectations

[Market Update] - Consumer Confidence Falls Feb 2024 | The Retirement Planning Group

Source: The Conference Board, Bloomberg.


Some may be asking, “Why would stocks rally for the past four months in the midst of a questionable economic environment and waning consumer confidence?” Perhaps because the rise in stocks has coincided with one of the most rapid periods of financial condition easing in at least 40 years. The top chart below shows the Goldman Sachs Financial Conditions Index (FCI) and the S&P 500 Index (bottom) on a daily basis over the past year. For the Financial Conditions, higher values indicate tighter financial conditions, and lower values reflect looser conditions. The Goldman Sachs Financial Conditions Index uses five different variables: the nominal federal funds rate, the 10-year U.S. Treasury yield, credit spreads (the difference in yield between bonds of the same maturity but different quality), equity performance, and the value of the U.S. dollar against a basket of currencies weighted to the amount of trade the United States does with those countries. In 2023, the FCI tightened rapidly from mid-July to late October (when equity markets troughed) but then quickly reversed course and closed out February at its lows as the market anticipated a shift in the Fed’s policy stance. The total cumulative easing over the past four months ranks as one of the most significant periods of relaxing financial conditions since at least 1982. The only instance of more extreme financial condition easing over four months occurred during the recovery from the COVID-19 crash. Before that, no such period of extreme easing had been observed since the Financial Crisis. What do easier financial conditions mean for the equity market going forward? Bespoke Investment Group screened for all periods since 1982 where the Goldman Sachs FCI experienced a four-month decline of 1% or more (i.e., easing). They found that the average and median returns observed over the subsequent three, six, and twelve months were all considerably higher than the long-term average. Specifically, one year later, the S&P 500 was higher every time with a median gain reaching just under +17%. Yes, the market has already rallied significantly off the October lows with the big easing of financial conditions, but historical instances of extreme easing in financial conditions have served as a catalyst for further equity market growth. Even if financial conditions just hang around these low levels and don’t tighten materially, it’s hard to get too negative on the stock market.

February Has Typically Been Weak for U.S. Stocks

Average S&P 500 Returns by Month (since 1920)

[Market Update] - February Has Typically Been Weak Feb 2024 | The Retirement Planning Group

Source: Bloomberg, Goldman Sachs, Standard & Poor’s.

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment. It offers many long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

[Market Update] - Asset Class Performance Feb 2024 | The Retirement Planning Group

Source: Bloomberg.
Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.