Late last week we closed the books on February, and the continued climb in the domestic stock market during the month added to the January gains of the major market indices. The same was true with the Real Money Post Industrial Average (RMPIA), which notched another month-over-month improvement.
For the first two months of 2019, the S&P 500 and the Dow Jones Industrial Average (DJIA) finished up 11.1% while the tech-heavy Nasdaq Composite Index climbed 13.5%. Outpacing those three indices was the small-cap-heavy Russell 2000, which finished February up 16.8% year to date.
While the RMPIA continued to climb during February, its performance during the month lagged the major market indices and it finished up 9.6% quarter to date exiting February.
Weighing on RMPIA's February performance was the sharp drop late in the month in Kraft Heinz Co. (KHC) shares as well as the nearly 12% decline in CVS Health Corp. CVS shares.
In total for February, eight of RMPIA's 30 constituents moved lower month over month, which weighed on the above-market returns generated by 10 of its constituents. The gains included a move of more than 10% during February by PayPal Holdings Inc. (PYPL) , the rebound in Qualcomm Inc. (QCOM) shares during the month and the nearly 8% move higher in Salesforce.com Inc. (CRM) shares.
For the first two months of 2019, nearly half of RMPIA constituents outpaced the DJIA and the S&P 500, with more pronounced returns generated by Netflix Inc. (NFLX) , Celgene Corp. (CELG) , Facebook Inc. (FB) and Mastercard Inc. (MA) .
A key takeaway from the data during February is the growing consumer spending headwind that has become increasingly evident from the December retail sales report, falling personal income data and increasing auto and student loan delinquencies.
At the same time, we learned that despite mild December weather Home Depot Inc. (HD) missed earnings expectations and set the bar lower. Macy's Inc. (M) reported uninspiring results and guidance, while Nordstrom Inc. (JWN) missed quarterly revenue expectations and L Brands Inc. (LB) , the home of Victoria's Secret and Bath & Body works, announced additional store closures.
Meanwhile, last week TJX Companies (TJX) , the parent of TJ Maxx, Marshalls, HomeGoods and HomeSense, reported same-store comp sales of 6% for its most recent quarter as store traffic surged. The company also boosted its quarterly dividend by 18% and announced plans to increase its share buyback plan to repurchase up to $2.25 billion of its stock this year.
Quite a different story.
Also last week, The Gap Inc. (GPS) , a company that has struggling with its identity, announced it was splitting into two companies. One will house its Gap and Banana Republic lines, while Old Navy, a business that caters to thrifty consumers, will stand on its own.
This brings up to RPMIA's Costco Wholesale Corp. (COST) , which has been taking consumer wallet share as it opens additional warehouse locations. Excluding the impact of gas prices and foreign exchange, Costco's U.S. same-store sales climbed 7.1% year over year in December and 7.3% in January. While COST shares are lagging the market thus far in 2019, the company's earnings report later this week should showcase those wallet share gains and its high-margin membership fee income.
As we move further into March, we have a slowing U.S. and global economy, earnings cuts that are making the stock market incrementally more expensive as it has moved higher in recent weeks, and a growing number of dividend cuts. Clearly, the stock market has been melting up over the last several weeks on increasing hopes over a favorable trade deal with China, but last week we saw President Trump abruptly end the summit with North Korea's Kim Jong Un with no joint agreement after Kim insisted all U.S. sanctions be lifted on his country. This action spooked the market, leading some to revisit the potential for a favorable trade deal between the U.S. and China.
Measuring the success of any trade agreement will hinge on the details. Should the agreement fail to live up to expectations, which is a distinct possibility, we could very well see a "buy the rumor, sell the news" situation arise in the stock market.
As we watch for these developments to unfold, we would be wise to keep tabs on insider selling activity in the coming weeks in light of the mismatch of earnings and dividends versus the stock market's move thus far in 2019.
