Stock Funds Fell 2.3% in February

The market did not have a Valentine’s Day in February. Despite a roaring start to the year in January, stocks did not show nearly as much love in February. Despite this, fund investors have enjoyed strong gains throughout the year. The average U.S.-stock fund fell 2.3% in February to trim the year-to-date gain to 5.3%, according to Refinitiv Lipper data. Stronger-than-expected economic releases in February helped to deflate investors who had just started to smile after January’s rally. In some analysts’ view, the strong reports meant that the Fed had more work to do. Core inflation in January remained a problem, “all but ensuring the Fed will continue on its rate-hiking campaign for a lot longer than markets anticipated just a few weeks ago,” says Jeffrey Roach, chief economist for LPL Financial in Charlotte, N.C. On average, international-stock funds declined 3% in February to trim the year-to-date gain to 5.4%.
Despite February’s pullback, funds focusing on growth stocks have performed well this year. Growth stocks—companies that are expected to deliver faster-than-average profit growth—were hammered in the 2022 market downturn. (Instead, beaten-down “value” stocks had the upper hand last year.) Lipper’s large-cap growth funds category was up 6.5% for the year through February; midcap growth was up 6.9%, and small-cap growth was up 8.1%. Still, with the risk of higher interest rates, many analysts caution that growth stocks, and the funds invested in them, won’t necessarily continue their run. Bond investors were disappointed in the substantial economic numbers in late February. Funds focused on investment-grade debt (the most common type of fixed-income fund) declined 2.4% on average in February to trim the year-to-date gain to 0.8%.