MARKET REPORT

S&P gain caps February recovery

Traders work Friday on the floor of the New York Stock Exchange, where stocks ended the month on a positive note. The Standard & Poor’s 500 index rose about 4 percent in February.
Traders work Friday on the floor of the New York Stock Exchange, where stocks ended the month on a positive note. The Standard & Poor’s 500 index rose about 4 percent in February.

NEW YORK - After two months of trading, the stock market is back where it started.

The Standard & Poor’s 500 index rose 4.3 percent in February, the biggest gain since October 2013, helped by strong corporate earnings and Federal Reserve policy. But the rise in February must be taken in the context that investors spent the month making up the ground they lost in January.

“February looked a lot like January, just moving in the opposite direction,” said Scott Clemons, chief investment strategist with Brown Brothers Harriman Wealth Management.

On Friday, the S&P 500 rose 5.16 points, or 0.3 percent, to 1,859.45. It was the second all-time closing high for the S&P 500 in a row. The S&P 500 is now up 0.6 percent for the year.

The Dow Jones industrial average rose 49.06 points, or 0.3 percent, to 16,321.71. The Nasdaq composite lost 10.81 points, or 0.3 percent, to 4,308.12.

Utilities and health-care stocks - two traditional “safe” places for investors because of their low volatility and higher-than-average dividends - are the biggest gainers so far this year. Utilities are up 5.7 percent in 2014, and health care is up 6.6 percent.

Investor caution was also evident in the bond market, which has done reasonably well in the past two months. The yield on the benchmark U.S. 10-year Treasury note has fallen from 2.97 percent to 2.65 percent in the past two months as investors returned to the relative safety of government debt. The Barclays U.S. Aggregate bond index, which tracks a broad mix of corporate and government bonds, is up 1.6 percent this year.

“The sentiment now is, ‘bonds may not be as bad as I originally thought,’” said Michael Fredericks, a portfolio manager of the Multi-Asset Income Fund at Blackrock.

February’s rise came despite several economic reports that showed the U.S. economy slowed in the previous month.

It started with the January jobs report, which showed employers only created 113,000 jobs that month. It was far fewer than economists had expected. Other economic reports told a similar story. Consumer confidence, manufacturing and the housing market all fell sharply in January.

Investors blamed the weather. Many companies, particularly retailers, said winter storms in the past two months dramatically hurt their business. Macy’s said that at one time in January, 30 percent of its stores were closed because of inclement weather.

Home Depot had a similar story.

“We don’t like to use weather as an excuse, but we think we probably lost $100 million in the month of January,” Home Depot Chief Financial Officer Carol Tome said during a conference call this week with investors. “Atlanta was frozen, for example. It was tough here.”

Even with the economic concerns, investors were able to set aside the volatility of January for three reasons, market watchers said.

First, corporate earnings for the fourth quarter overall turned out to be good. Earnings at companies in the S&P 500 index grew 8.5 percent over the same period last year, according to FactSet. Revenue growth also picked up, albeit slightly.

The Fed, once again, also went to the market’s side. Janet Yellen, who in February took over as chairman of the Fed, reaffirmed that the central bank plans to keep its market-friendly, low interest rate policies in place for the foreseeable future.

Lastly, weather, by its very nature, is temporary.

Spring will come, at some point, and the winter storms that have kept businesses closed and consumers away from stores will fade, investors say. All that pent-up demand will help the economy recover some of the ground lost in January and February.

“I think 70 percent, 80 percent, of the weakness we saw in January and February was weather-related, and we will pick up strength in the spring thaw,” said Bob Doll, chief equity strategist at Nuveen Asset Management.

Business, Pages 32 on 03/01/2014

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