2022's Doppelgänger | March 2023
February felt a lot like 2022 in the markets—that’s not welcome news for investors.
Once again, traders are treating good news as bad news. Most of the economic data pointed toward growth, and inflation came in a little higher than expected—though it is still in line with the path of inflation I laid out months ago. Generally, you’d think that would be welcome news because avoiding a recession would be better for corporate earnings. But, no, the fear among traders is that continued growth and inflation will lead the Federal Reserve (Fed) to hike the fed funds rate higher and higher.
So, after a good start to the year, both stocks and bonds took a step backward in February. In fact, while a month ago, I reported that all but five Vanguard funds gained ground in January, only two managed to advance in February—Market Neutral (VMNFX, 2.0%) and Information Technology ETF (VGT, 0.5%). (All of Vanguard’s money market funds were positive in both months, but I don’t count them in this analysis.)
500 Index (VFIAX) declined 2.4% in February and foreign stocks fell further with Total International Stock Index (VTIAX) sliding 4.1%. As I said, bonds stumbled too. Total Bond Market Index (VBTLX) dropped 2.5%.
Stock and bond markets falling at the same time ... sounds a lot like 2022. But look under the hood and February wasn’t a carbon copy of last year's markets.
Information Technology ETF, one of last year's laggards was, as I mentioned, one of the two funds to gain ground in February. Or take Health Care ETF (VHT). It only fell 5.6% last year but was the second-worst-performing sector fund in February.
Or consider that last year, value stocks outperformed growth stocks—not so in February as Growth ETF (VUG) declined 1.4% while Value ETF (VTV) slid 3.2%.
Let this serve as yet another example of how hard it is to time the market. Like last year, investors sold stocks in February due to concerns about the Fed hiking interest rates. And yet, had you followed "2022's playbook" (buying value and health care stocks), that wouldn't have worked in your favor.