- Domestic equities dipped into correction territory after persistent volatile trading; S&P 500 Index ended down (-5.2%) for second consecutive week. Stocks finished off week’s lows with broadly positive Friday performances. S&P 500 +1.5%, Dow +1.4%, Nasdaq +1.4%, Russell 2000 +1.0%.
- Bounce higher led by technology, risk-off utilities and REITs outperformed as well. Energy–the sole negative performing sector for the day.
- Treasury yields extended climb higher. 10-year yield +3 basis points (+0.03%) to 2.85%.
- NYSE breadth positive (1.4:1), trading volume remains elevated (133% of 30-day average).
- Commodities: WTI crude oil sell-off continued, dipping back below $60/bbl. (-3.16% to $59.22). COMEX gold held flat at $1318.90/oz., industrial metals closed lower across the board.
- Economic data: Economic calendar fairly light for Friday; domestic inventory build for wholesalers came in slightly above expectations (0.4% vs. 0.2%).
Overnight & This Morning
- Stocks open solidly higher. U.S. equities are looking to rebound from their worst week since January 2016.
- Asian indexes mixed; Japan’s Nikkei closed for holiday. Hang Seng -0.2%, Shanghai Composite +0.8% amid light volume ahead of holidays Thursday, Friday.
- Europe broadly positive to begin week. FTSE 100 +1.2%, DAX +1.6%, STOXX Europe 600 +1.4%.
- 10-year Treasury yield climbs to highest level in four years, +6 basis points (0.06%) to 2.89%.
- Commodities: Oil (+2.0%) back above $60/bbl., gold +0.4% to $1320/oz.
- Economic data: January Treasury Budget will be released at 2:00 p.m. ET.
- Earnings season steps up a notch. With about 70% of S&P 500 companies having reported, the index is tracking to fourth quarter earnings growth of 14.7% year over year, about 3% above expectations on January 1. A solid 78% of index constituents have beaten earnings estimates thus far. Energy, financials, and technology have been the biggest contributors to growth. S&P 500 revenue growth is tracking to an 8% year-over-year increase, 1% better than January 1 estimates on an impressive 79% beat rate, significantly above the 60% long-term average. Estimates for full-year 2018 rose 1.3% last week, are now up 6.7% since January 1, and reflect an 18.5% increase over 2017. Strong positive revisions are being driven by the new tax law, steady global growth, and the weak dollar. This week, 57 S&P 500 companies will report quarterly results.
- Last week in perspective. It was one of the most volatile weeks we’ve seen in equity markets in years. In the end, the S&P 500 closed down 5.2% for the worst weekly decline since early January 2016. The CBOE Volatility Index (VIX) soared over 100% on Monday alone, marking the single largest percentage move in history. For the week, the VIX gained more than 67% for its largest weekly percentage gain since August 2015.
- White House unveiling infrastructure plan as part of 2019 budget proposal.Details of President Trump’s infrastructure plan, set to be released today as part of the 2019 fiscal budget, are expected to include $200 billion in new federal spending over the next decade, aimed at spurring $1.5 trillion in new infrastructure investment. Of the $200 million, half will be made available to states and municipalities as matching funds; though federal matching would be capped at 20% of a project’s costs, and there is widespread skepticism regarding states’ and municipalities’ ability to shore up the other 80%. The remaining $100 million will be earmarked for rural projects, streamlining the permit process for new projects down to two years, and ramping up workforce training. Democrats, while largely in agreement that the nation needs to shore up its infrastructure, have their own plan; though it calls for $1 trillion in federal spending. As is always the case, the details in the current budget proposal could differ notably in the final version, and passage of the infrastructure spending component is not a given.
- Week ahead. This week (February 12-16), market participants will closely eye a series of consumer and producer inflation data midweek, along with retail sales figures for last month; this ahead of housing starts and building permits, and the University of Michigan Sentiment survey on Friday. Turning to Europe, U.K. inflation is due out Tuesday, followed by gross domestic product (GDP) data for Germany, Italy, and the Eurozone on Wednesday before Germany’s Wholesale Price Index caps off the week. Key releases in Asia include Japanese producer prices on Monday and its GDP report on Tuesday, as well as a couple sets of manufacturing data to go along with industrial production and capacity utilization. Elsewhere, expect new loan growth and money supply data out of China to garner attention on Friday.
- An exciting week for economists and lovers alike. The latest Consumer Price Index (CPI) reading (for January 2017) will be released on Valentine’s Day (February 14). The consensus forecast expects that despite rising inflation expectations, actual CPI may fall on a year-over-year basis, to 1.9% and 1.7% for headline and core inflation, respectively. But outside of any market impact, the confluence of a major inflation report and an important holiday for consumer spending gives us a chance to see how inflation can impact real life. We take a deeper look at how inflation has impacted the price of several common Valentine’s Day gifts in our annual update of our Valentine’s Day Index in this week’s Weekly Economic Commentary, due out later today.
Monitoring the Week Ahead
- Monthly Budget Statement (Jan)
- Japan: PPI (Jan)
- National Federation of Independent Business Small Business Optimism (Jan)
- UK: CPI & PPI (Jan)
- Japan: GDP (Q4)
- Japan: Machine Tool Orders (Jan)
- CPI (Jan)
- Core CPI (Jan)
- Retail Sales (Jan)
- Business Inventories (Dec)
- Eurozone: GDP (Q4)
- Germany: GDP (Q4)
- Italy: GDP (Q4)
- Eurozone: Industrial Production (Dec)
- Japan: Core Machine Orders (Dec)
- Japan: Industrial Production and Capacity Utilization (Dec)
- Empire State Mfg. Report (Feb)
- PPI (Jan)
- Philadelphia Fed Mfg. Report (Feb)
- National Association of Home Builders Housing Market Index (Feb)
- Total Net TIC Flows (Dec)
- Eurozone: Trade Balance (Dec)
- Import & Export Price Index (Jan)
- Housing Starts & Building Permits (Jan)
- of Mich. Sentiment (Feb)
- China: New Loan Growth and Money Supply (Jan)
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