The stock markets finished February just as they began: with gains, leading to a record month for the main benchmarks.

Most notably, the Nasdaq Composite closed at 16,092 on Feb. 29, marking an all-time closing high for the index. The previous closing high was on Nov. 19, 2021 at 16,057. The index had since dropped some 36% — all the best way all the way down to 10,231 on Dec. 28, 2022 — nevertheless it has now gained all of it back. In February alone, the Nasdaq climbed 6.1%, making it the very best February since 2015. Yr thus far, the Nasdaq is up 7.2%.

The S&P 500 also finished February with a latest record, jumping 0.5% on the day to shut at an all-time high of 5,096. The big-cap benchmark finished February up 5.2%, making this the very best February for the S&P 500 since 2015. As of Feb. 29, the S&P was up 6.8% YTD.

While the Dow Jones Industrial Average didn’t close February at a record level, it did set an all-time high through the month. The Dow closed Thursday at 38,996 — up 0.1% for the day to finish the month up 2.2%. It also set a closing record of 39,131 on Feb. 23. The Dow is now up 3.5% YTD.

To not pass over the small caps, however the Russell 2000 also had a superb month, up 5.5% in February to shut at 2,055 on Feb. 29. The Russell 2000 is up by about 1.4% YTD.

NVIDIA, Meta amongst top stocks in February

As usual, February was the guts of earnings season. The month’s returns were buoyed by reports from a lot of the Magnificent Seven stocks, including NVIDIA (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META), which were two of the 4 best performers on the S&P 500 and two of the highest three on the Nasdaq in February.

NVIDIA saw its stock price surge about 31% in February, rising sharply after the corporate post record fourth-quarter earnings on Feb. 21. It also had a bullish outlook for the primary quarter of 2024, with revenue expected to set a latest record of $24 billion, up from $22 billion in Q4. After returning 239% in 2023, NVIDIA stock is up some 62% in 2024 yr thus far.

Meta Platforms was one other big gainer last month, notching a February return of 28%. The corporate posted its fourth-quarter earnings results on Feb. 1, reporting a 25% increase in revenue with net income that tripled yr over yr.

A significant component was a cost-cutting initiative that resulted in an 8% drop in expenses. The report was also notable for the undeniable fact that Meta offered its first-ever dividend, a 50-cent-per-share payout to investors. Meta is up by about 41% YTD after returning 194% in 2023.

Nonetheless, the very best performer on the S&P 500 and the Nasdaq in February was Constellation Energy (NASDAQ:CEG). The stock gained 37% in February, with most of those gains coming after it released its fourth-quarter earnings results on Feb. 27.

The energy company, which is the most important producer of carbon-free energy, reported mixed leads to the fourth quarter, missing estimates for earnings but beating on revenue. Nonetheless, Constellation Energy’s stock more likely surged on its earnings guidance for 2024, which was higher than analysts had anticipated and led to a slew of price-target upgrades.

Is the market overvalued?

Now that the main benchmarks are all at or near all-time highs and have erased the losses from the late 2021 and 2022 bear market, where do things go from here? Is the market due for a correction?

That is difficult to know, but certainly one of the symptoms to look at is the Shiller P/E ratio, also generally known as the cyclically adjusted price-to-earnings (CAPE) ratio. This ratio gauges the valuation of the S&P 500 based on the typical inflation-adjusted earnings over the past 10 years, offering a longer-term view than the standard P/E ratio.

The Shiller P/E ratio currently sits at 34, which is higher than normal. The long-term median Shiller P/E is about 16, but over the past 10 years, it has predominantly hovered within the mid-to-high-20s range. In March 2020, it dropped to 24, and just before the markets crashed in November 2021, it was at 38. Thus, at 34, it will not be yet as high because it was in November 2021, nevertheless it bears watching.

The regular 12-month trailing P/E ratio of the S&P 500 is 23, which continues to be in a reasonably reasonable range, even though it is up from 17 a yr ago. Nonetheless, the P/E ratio of the Nasdaq 100 has crept as much as 34 from 24 a yr ago.

This means that the markets are running a bit hot at once, especially the Nasdaq. Investors should control valuations, particularly amongst technology stocks, and be cautious with people who have valuations well outside their normal ranges.