The calendar may have turned to a new month, but February's stock market choppiness carried into March.
The bulk of the price action was to the downside as the latest round of economic data heightened recession and inflation fears. The Dow Jones Industrial Average, however, eked out a win on strength in blue chip stocks 3M (MMM) and Caterpillar (CAT).
Data from the Institute for Supply Management showed its manufacturing index improved to 47.7% from 47.4% in February, but remained in contraction territory for a fourth straight month. Meanwhile, the price component of the survey moved above the key 50 mark for the first time since September, rising to 51.3 from 44.5. "This is the most recent piece of disappointing inflation data," says Michael Reinking, senior market strategist at the New York Stock Exchange. "This suggests that at least in the short-term that the goods disinflation we've been seeing has run its course."
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As the broader market chopped around, two stocks made decisive moves lower. Rivian Automotive (RIVN) plummeted 18.3% after the electric vehicle (EV) maker forecast 2023 production of 50,000 vehicles, below what analysts were expecting. RIVN also reported lower-than-expected revenue for the fourth quarter, though its per-share loss was slimmer than anticipated. "Supply chain continues to be the main limiting factor of our production; during the quarter we encountered multiple days of lost production due to supplier shortages," the company said in a letter to shareholders. "We expect supply chain challenges to persist into 2023 but with better predictability relative to what was experienced in 2022."
Elsewhere, Novavax (NVAX) plunged 25.9% after the vaccine maker said that although it has enough cash for the next 12 months or so, "substantial doubt exists regarding our ability to continue as a going concern through one year." The company also reported a wider-than-expected loss in its fourth quarter, as well as a top-line miss.
As for the major indexes, rising Treasury yields sent the rate-sensitive Nasdaq Composite down 0.7% at 11,379, while the S&P 500 fell 0.5% to 3,951. The Dow, which was up around 0.3% at its intraday peak amid strength in 3M (+2.3%) and Caterpillar (+3.8%), ended the day with a marginal gain at 32,661.
Why industrial stocks could outperform
Today's upside in Dow stocks MMM and CAT reflected broader strength in industrials, which was just one of three sectors to finish higher (energy stocks and materials being the other two). But this is just more of the same from the group. "In February, industrials was one of the top-performing sectors, and we see plenty of further upside in sectors like industrials and materials which tend to do better during periods of higher interest rates," says David Keller, chief market strategist at StockCharts.com.
"While the 10-year Treasury yield and U.S. dollar both dropped in January, in February we saw both of those charts turn back higher," Keller adds. "Higher interest rates and a stronger dollar would suggest value-oriented sectors as having a much greater opportunity through the first half of 2023." In addition to industrials and materials, consumer staples stocks and financials are often grouped under the "value" umbrella.
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