• The stock market in February was pushed and pulled by bullish and bearish tendencies. But ultimately bullishness won out, as the S&P 500 Index gained 3.10%, its best monthly performance since last November. After a loss in January, the S&P 500 is down 0.61% for the first two months of the year. When market sentiment is as mixed as it is now, volatility tends to rise, and that was the case in February: the Dow Jones Industrial Average underwent eight triple-digit daily point swings during the month.
  
  
• The primary bearish catalyst was Greece’s budget and credit problems, which investors feared might weaken the euro and spread to Portugal, Ireland, Italy, and Spain, whose budget deficits have soared over the past three years. But European leaders pledged support of Greece and at the same time urged the country to adopt new austerity measures to reduce its budget deficit. The consensus of economists, market strategists, and investors seemed to be that the European Union would do whatever was necessary to avoid a default by Greece.
  
  
• Also stoking investors’ anxieties were two bits of news that cast doubt on the strength of global economic growth in the near term. One, Chinese regulators, seeking to quell accelerating inflation, moved to restrict new lending, an action perceived as threatening to slow China’s booming economy. As The New York Times explained, a credit binge in China has set off "a surge in property prices . . . Land prices in mainland China, for example, doubled in 2009 on a nationwide basis, according to economists at Standard Chartered in Shanghai. That has brought worries about a property bubble and concerns that some of the loans might ultimately go sour." Two, the unemployment rate in the U.S. remained persistently high at 9.7%, and a Labor Department report found that the economy had lost a net 20,000 jobs in January. Unless the employment picture brightens, consumer spending in the U.S. is likely to remain lackluster, economists say.
  
  
• Outweighing the bearish news was bullish news on a number of fronts. For instance, the Commerce Department announced that business spending on equipment and software rose at an inflation-adjusted 13.3% annual rate in the fourth quarter, the fastest growth since 2006. The S&P 500 Index companies reported fourth-quarter earnings that were 47% higher than a year ago, excluding financial-services companies, whose earnings woes last year distort the overall figure. Bank of America Merrill Lynch projects that the S&P 500 companies’ year-over-year growth in earnings per share should reach 19% in 2010 and 13% in 2011. The Institute for Supply Management reported that U.S. factory activity in January was the best in more than five years. Last but not least, the U.S. economy grew at a 5.9% annual rate in the fourth quarter, the highest level since 2003.
  
  
• A development that proved a nonevent as far as the stock market was concerned was this somewhat unexpected announcement on February 18: the Federal Reserve was raising the discount rate, the rate it charges banks for emergency loans, by a quarter-percentage point, to 0.75%. Some investors were concerned that the move might herald additional interest-rate hikes by the Fed and bring the bull market begun last March to a halt. But the market continued to rise, as investors accepted the Fed’s explanation that the move was a "technical" change.
  
  
• Even so, the prospect of rising interest rates wasn’t favorable for utilities, which generally performed poorly both in February and the year-to-date. The utilities sector of the broad-based Russell 3000 Index declined 1% in February and more than 7% thus far in 2010. The sector’s weakness was attributed to this market phenomenon: when rates are anticipated to rise, utilities’ above-average dividend yields tend to suffer in comparison with those of bonds. Also, utilities stocks had rallied in December, and investors took profits in them early in the new year. Overall, seven of the nine sectors in the Russell 3000 Index recorded positive returns in February. The top performer was the consumer-discretionary sector, up about 5%. The consumer-discretionary and producer-durables sectors have generated the best results for the year-to-date, both up more than 3.6%.
  
  
• In February, growth stocks performed slightly better than value stocks did. The Russell 3000 Growth Index rose 3.51%, a performance edge of 0.23 percentage point over its value counterpart. Value leads for the year-to-date, with a gain of 0.36% versus a 1.02% loss for growth.
  
  

• Among capitalization segments, mid-cap stocks generated the best relative results in February. The Russell Midcap Index gained 5.00%, versus 4.50% for the small-cap Russell 2000 Index and 3.30% for the large-cap Russell 1000 Index. Mid-cap stocks also lead the performance parade for the year-to-date, with a 1.49% return, compared with flat returns for large-cap and small-cap stocks.

The views expressed represent the opinions of Turner Investment Partners and are not intended as a forecast, a guarantee of future results, or investment recommendations. Past performance is no guarantee of future results. The indexes mentioned are unmanaged statistical composites of stock-market performance. Investing in an index is not possible. Earnings growth does not necessarily lead to an increase in share prices. For institutional use only.

The S&P 500 Index tracks the performance of 500 widely held large-cap U.S. stocks in the industrial, transportation, utility, and financial sectors. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price/book ratios and higher forecasted growth values. The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price/book ratios and lower forecasted growth values.