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Week in Review

Week Ending: February 23, 2018

Recap & Commentary

The recent rebound in U.S. equities appeared to stall last week until a strong rally on Friday. The rally, fueled in part by a slight decline in the 10yr Treasury yield, which brought it back below 2.90%, left equity markets in positive territory for the week. As a result, both the Dow Jones Industrial Average and the S&P 500 have now recouped more than half their losses from earlier in the month.

On Wednesday, the Fed released the minutes from its January meeting, the last under Janet Yellen’s watch as Fed Chair. The general interpretation was that the Fed now sees a stronger economy than it did as recently as the end of 2017. That had the effect of briefly pushing the 10-Year Treasury yield to 2.96%, a four year high. One notable point within the minutes was that FOMC staff presented three briefings on inflation analysis and forecasting. Despite expectations to the contrary, inflation has continually defied the Fed by remaining stubbornly below the central banks 2% target.

The Fed will once again be in the spotlight this week as new Fed Chair Jay Powell appears before Congress to deliver the Fed’s semi-annual testimony. Though Powell is widely viewed as a proponent of the policies espoused by former Chair Janet Yellen, this will nonetheless be his most high profile appearance since becoming Fed Chair and as a result, markets will be carefully parsing his remarks.

Through Friday, 90% of S&P 500 companies had reported fourth-quarter earnings with 74% and 78% beating their earnings and revenues estimate, respectively. According to FactSet, fourth-quarter earnings growth is currently expected to be 14.8%, which if met, would represent the strongest growth since third quarter 2011.

Economic Bullet Points

Still constrained by supply, Existing Home Sales unexpectedly fell -3.2% in the month, pulling the annual rate to its lowest level since August 2014. Supply increased from December’s very low level, however, is still 9.5% below last January’s level. A lack of supply clearly remains a problem for the resale market. Homes at the lower end of the price spectrum are the scarcest, adding to first-time homebuyers’ frustrations. First-time homebuyers accounted for 29% of total buyers, down from 32% one year ago. Prices softened in January, though the median sales price is still up on a Y/Y basis.

Robust economic growth ahead was the signal from the index of Leading Economic Indicators. The index accelerated 1.0% in January, its second-highest monthly gain in five years. Underlying details suggest that consumers and investors feel confident in the near-term economic outlook, supported by strength in hard data, paired with solid expectation-driven data. Recent strength in this reading suggests economic improvement in 2018.

The labor market continues to look favorable, Jobless Claims remain near historic lows.

Of Note

  • Through Friday, the daily average price change in the U.S. stock market during February has been 1.3%. In 2017, the daily average move was just 0.3%.
  • According to the Federal Reserve, aggregate U.S. household debt reached $13.15T as of 12/31/17, the highest level ever recorded.
Market Indices Week of 2/23

S&P 500                     0.6%

Russell 2000              0.4%

MSCI EAFE              -0.5%

MSCI EM                    1.4%

Commodities            0.6%

Barclay’s Agg.            0.0%

US Dollar Index         0.9%

10-Yr Yield                   2.89%

Oil ($/bl)                          $64

Gold ($/oz)                 $1,328

The Week Ahead

  • New Home Sales
  • Durable Goods Orders
  • ISM Manufacturing Index
  • Construction Spending
  • Case-Shiller HPI
  • Personal Income & Outlays
  • Consumer Confidence
  • Consumer Sentiment
  • GDP
  • Jobless Claims
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