The S&P 500 fell in February, halting momentum in the stock market from earlier this year. Major indexes eventually slumped due to concerns about high interest rates and slowing economic growth, but there were winners and losers within these overall trends.
These four stocks made big moves last month that illustrate important forces shaping the stock market today.
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1. Chevron
Shares of Chevron (CVX 1.54%) fell 6.8% in February, primarily due to declining prices for crude oil and natural gas. The energy stock's market cap is over $300 billion, so the move lower represented one of the biggest reductions in market value.
CVX Total Return Level. Data source: YCharts
Chevron reported record quarterly profit and cash flow in January, though it fell nearly 7% short of Wall Street earnings-per-share (EPS) forecasts. High crude oil prices last year created ideal conditions for oil producers, who generated large cash flows above their substantial fixed costs for labor, machinery, infrastructure, and debt financing. Chevron is returning some of that that cash to shareholders, as it announced a higher quarterly dividend and increased its share repurchase program.
Chevron's February swoon illustrates an important dynamic across the energy sector: Investors are always thinking about future profits, so the January results couldn't protect the stock from falling crude oil prices. This trend was common across Chevron's peers -- the Energy Select Sector SPDR ETF dropped 7% last month.
Energy and raw materials producers were some of the best performers in the stock market last year, but they're struggling to maintain that momentum now as inflation and commodity prices cool.
2. Alphabet
Alphabet (GOOGL -1.23%) (GOOG -1.10%) shares dropped 8.9% in February, another huge reduction of investor value, due largely to the poor reception of its AI product demonstration. The stock declined initially after an earnings report that fell short of expectations, indicating weakness in search advertising, cloud computing, and YouTube revenue. This stripped some momentum from the tech giant, though the shares remained fairly stable as the broader stock market rose.
But then Alphabet stock tumbled in mid-February after it held a demonstration for its AI product, Bard. Microsoft had debuted its collaboration with OpenAI, and investors were impressed by the combination of Bing and ChatGPT.
Bard's demo was less impressive, as it made errors that would render a chatbot less valuable than the existing search products. In the following days, Alphabet shares sunk while Microsoft moved higher, before both stocks slid lower amid market weakness fueled by interest rate fears.
It's now clear that both of these AI products have some glaring flaws, and concerns about Alphabet's issues could be overstated. Still, investors expect AI to be a transformative force over the next few years. This could mark the opening volley in the AI era of the tech industry.
3. Moderna
Moderna (MRNA -0.58%) shares sank 21% in February after the drugmaker delivered a disappointing fourth-quarter earnings report. The vaccine producer's EPS declined 68% from the prior year, and it missed Wall Street's forecast by 23%. Moderna's revenue forecasts point to dramatically lower sales next year, while the company simultaneously struggles with costs associated with unused inventory and excess manufacturing capacity.
Investors and pharmaceutical companies overestimated the medium-term demand for various medications, especially those intended to treat COVID-19 variants. These effects are showing up in quarterly reports already, and it seems that financial results will get worse before they get better.
Long-term demand for pharmaceutical and biotech products is a fairly safe bet, but the industry is enduring an adjustment period. Moderna was the most extreme case, but a number of large pharmaceutical stocks lagged the market in February, illustrating a broader trend.
4. Palo Alto Networks
Palo Alto Networks (PANW -1.22%) shares climbed an impressive 19% in February after a strong earnings report. The cybersecurity company beat analyst estimates for both sales and adjusted earnings, delivering 26% growth over the prior year.
More importantly, Palo Alto Networks demonstrated its ability to control costs and deliver substantial growth in net earnings and free cash flow. It far exceeded Wall Street's expectations in both regards. It also provided an encouraging outlook for 2023.
Cybersecurity stocks endured a wild ride during the past few years. They were among the best performers during the bull market, but they were among the hardest-hit growth stocks when the market sank last year. Now, with investors anticipating slower global economic growth, they are focusing on lower-risk businesses that aren't burning cash.
Many of the leading cybersecurity stocks have shown that they can generate positive cash flow while still delivering above-average growth. February was a big month for some of Palo Alto Networks' industry peers, such as Cloudflare and CrowdStrike. Cybersecurity stocks will continue to deal with volatility, but they're looking more resilient in the face of short-term obstacles.
