After about two years largely focused on inflation, rate hikes, and potential rate cuts, investors in February seemingly distanced themselves from their Fed obsession and embraced a speculative enthusiasm reminiscent of 2021. 

U.S. stocks rose roughly 5%, even in the face of higher interest rates and a growing acceptance that significant rate cuts will not materialize in the first half of this year. International stocks also posted gains, but again trailed concentrated U.S. indexes.¹  

Chipmakers eye the sky 

Growth stocks again led the way, with Nvidia remaining the star of the show. The chipmaker’s earnings release was the financial media event of the month, and the company delivered by blowing through already aggressive estimates. Shares rocketed higher, building on last year’s massive rally. Nvidia has now zoomed past Amazon, Google, and Saudi Aramco to become the third most valuable company in the world.^1,2  

While Nvidia is grabbing most of the headlines, chip stocks in general are having a moment in the sun. Shares are being bid up by eager investors. Semiconductors have long been a competitive boom-and-bust type industry. They are not a subscription type good, and earnings volatility has historically restrained valuations. Maybe it will be different this time with AI, but we suspect demand will remain cyclical and competition and pricing pressures will resurface. 

Differing gains in ‘Magnificent 7’    

Despite the enthusiasm for Nvidia and other chipmakers, investors are becoming more discerning in their outlooks for who will benefit from AI. Divergence within the “Magnificent 7” has increased. Apple and Google were down modestly during the month and are lower for the year. Tesla gained in February, but it has since resumed a sell-off that has seen its share price decline by more than half from a peak at the start of 2022.¹ These results highlight the challenges of meeting lofty expectations now embedded in the whole group. 

Crypto hits new highs 

In another flashback to 2021, Bitcoin spiked, hitting new all-time highs early in March.¹ Bitcoin has been loosely correlated with stocks in recent years, so the overall equity rally is likely spurring desire to speculate on cryptocurrencies. It is also likely the recent launch of Bitcoin ETFs has accelerated flows. We do not know of any way to confidently predict the future direction of Bitcoin but note that increased ownership within ETFs makes it easier to trade. This could accelerate volatility in both directions even further.