As February draws to a close, markets are grappling with volatility and shifting investor sentiment, and Sam Stovall, chief investment strategist at CFRA, joins to break down what’s driving the turbulence. He notes that while a positive January and February historically signal strong full-year performance for the S&P 500, this year’s negative start reflects typical seasonal weakness and rising concerns about economic slowing. Stovall points to clear sector rotation into defensive and late-cycle areas like energy, utilities, healthcare, and consumer staples as investors weigh softer GDP growth and potential recession risks in 2026. Despite the cautious tone, he highlights strong earnings momentum, with recent quarterly results beating expectations and forecasts projecting steady growth over the next several years. He also explains that dramatic weather events, while attention-grabbing, rarely have lasting market impact and can sometimes even stimulate economic activity through rebuilding and replacement demand.
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joining me now to talk more about this volatility.
What we've seen in January and February as February is about to round out.
I do want to bring in all the chief investment strategist and CFRA great to have you with us today.
It is a snowstorm.
Hard to say that multiple times fast, but we also have some historic moves within the market.
What's on your radar as we're looking for February to come to a close.
Well, I guess optimistically, Kristen, I'd be hoping that February would post a positive return.
It doesn't look as if that's going to be happening because now the whole year is negative.
But if we had a positive January and a positive February since World War II, the S&P 500 posted a positive total return for the Full year 100% of the time.
So the indication would be that yes we can get through this volatility, uh, but you know, with your fingers crossed that the full year ends up being positive, but it looks as if the regular seasonality has kicked in with February being typically a down month.
Interesting that there are some concerns percolating around this technology space if you will.
I mean those concerns have been palpable for the past few months or so.
What are you seeing in terms of sector rotation and what is the data tell us?
Sure, well, we're seeing the sector rotation right now, as you had mentioned in the intro, it's certainly a risk off day with the alignment being consumer staples, healthcare, utilities, and energy.
Not surprisingly, uh, energy, I call the fourth beetle because it does tend to hold up quite well in a recessionary environment.
And I think because we are looking at late cycle sectors.
Industrials, materials, and energy doing well combined with the defensive areas such as consumer staples and utilities.
I think investors are worrying that maybe the 1.4% GDP growth that we got in the fourth quarter is sort of an indication that maybe this economy is slowing, that the job picture is weakening, and that maybe sometime in 2026 we could slip into recession.
Interesting.
Look, I do want to talk earnings because we're at the tail end of this earnings season.
Nvidia is one of the last companies to report.
We have a few other companies on the docket as well.
Takeaways from these results as they've been coming in.
Well, what's interesting is that management has once again done a wonderful job of managing expectations because according to S&P Capital IQ consensus estimates, Q425 earnings for the S&P 500 was expected to be up 7%.
However, now it looks as if we're going to have a 12.7% gain, which would make the 65th quarter out of the last 60. in which the actual results have exceeded end of quarter estimates.
And if we look to 25, 26, and 27 full year estimates, they seem to be a stair step upwards from 12.5 to 131 to 16%.
So it looks as if Wall Street is still fairly optimistic about earnings growth for the several years ahead.
One final question here, Sam, is I mentioned obviously we're looking at probably about 20 inches of snow in Central Park.
I do believe among the top 10 snowfalls of all time.
If you go back before 1900.
Have you followed any of the data as it relates to extreme weather events like these and any potential impact on the market?
No, I think it certainly makes for interesting headlines, but doesn't really affect overall bottom lines.
I mean, the same goes for hurricanes which are much more destructive than snowstorms.
What you typically find is that it ends up improving economic output because you now have to replace depreciated assets with brand new assets, and that tends to stoke economic activity.
All right, Sam Stovall is the chief investment strategist at CFRA.
Sam, great to talk to you.
Thanks so much.
My pleasure.