- Stocks lower as busy week begins. (10:05am ET) Markets are lower this morning as investors evaluate mixed durable goods orders data and await several Fed speakers and President Trump’s address to Congress this week. Domestic stocks rallied at the end of the day on Friday, helping the Dow notch its eleventh consecutive gain; the S&P 500 was up 0.2%. Rate-sensitive utilities (+1.5%) and telecom (+0.7%) outperformed while energy (-0.9%) and financials (-0.7%) were the only sectors to lose ground. Overnight in Asia, the Nikkei (-0.9%) and Shanghai Composite (-0.8%) led broad declines in the region, while most European exchanges are modestly lower in afternoon trading, although Italy’s MIB (+1.5%) is bucking the trend. Elsewhere, WTI crude oil ($54.38/barrel) is up 0.7%, COMEX gold ($1259/oz.) is near flat, and the yield on the 10-year Treasury note is up three basis points (0.03%) to 2.34%.
- Earnings season winds down this week. With 32 S&P 500 companies slated to report this week and 460 having reported already, this week effectively marks the end of fourth quarter earnings season. S&P 500 earnings growth for the quarter is tracking to solid 7.7% growth according to Thomson Reuters data, less than 2% above prior estimates, while revenue growth is tracking to a very respectable 4.3% increase. While fourth quarter upside is below average, the growth rate is a meaningful improvement from the 4% growth rate in the third quarter of 2016 and flat or negative growth for several quarters before that. Looking forward, the modest 1% drop in 2017 S&P 500 earnings estimates, which remain 10-11% above 2016 earnings, is an encouraging sign. We believe our mid- to high-single-digit S&P 500 earnings growth forecast for 2017 is achievable given our expectation for better economic growth and potential for a policy boost.
 We expect mid-single-digit returns for the S&P 500 in 2017 consistent with historical mid-to-late economic cycle performance. We expect S&P 500 gains to be driven by: 1) a pickup in U.S. economic growth partially due to fiscal stimulus; 2) mid- to high-single-digit earnings gains as corporate America emerges from its year-long earnings recession; 3) an expansion in bank lending; and 4) a stable price-to-earnings ratio (PE) of 18 – 19.
- Busy start to a very busy month. This is an incredibly busy week for economic data and events around the globe. In the U.S., President Trump will address a joint session of Congress on Tuesday night, and Fed Chair Yellen and Vice Chair Fischer will deliver speeches on Friday. In addition, there are half a dozen other FOMC members on the docket this week, and the Fed will also release its Beige Book Wednesday March 1 ahead of the March 14-15, 2017 meeting. In addition to that, data for January and February on ISM (manufacturing and non manufacturing), vehicle sales, and pending home sales are due out. Overseas, the U.K.’s House of Lords will begin debate on Article 50 (aka Brexit), China will release key data in manufacturing and service sector activity, and in Europe, February data on CPI and bank lending for January will be closely watched.
- Durable goods order and shipments. Sizable upward revisions to prior months’ data offsets weaker than expected January reading. New orders for “core” durable goods fell 0.4% between December and January, but the December reading, initially reported as a 0.7% gain, was revised up to show a 1.1% increase instead. The durable goods data are notoriously volatile month-to-month and subject to large revisions. Looking at changes over three months can help to smooth out some of the inherent volatility, and in the three months ending January 2017, core durable goods orders rose 9%, a clear acceleration from the 4% gain posted in the three months ending October 2016. The acceleration in orders in the past three months suggests that business capital spending is likely to be a plus for GDP in the first half of 2017.
- Up five weeks in a row. The S&P 500 had a late-day surge on Friday to close higher for the fifth consecutive week for the first time since coming off of the February 2016 lows. Momentum seems to stay in play after long weekly win streaks, as the past 10 times the S&P 500 was up five consecutive weeks, it was higher two weeks later nine times. Under the surface though there was a unique development, as the Dow Jones Utility Average had its best week since early July – up 4.1%. In fact, since the bull market started nearly eight years ago, that type of weekly move happens only 2.9% of the time. Three of the four days last week saw utilities gain at least 1%, which hasn’t happened since October 2015. Historically, utilities taking the lead has been a warning sign, as defensive names find a bid.
- Dow does it again. It took a nice-sized rally the last 20 minutes of the day, but the Dow eked out a gain of 0.05% on Friday. This was the eleventh consecutive record high, with only one streak longer since 1900 (12 in a row in 1987). In terms of any winning streaks, not just record highs, the current streak of 11 in a row is the most since early 1992. We took a look on the blog last week at what happens after long win streaks.
- March preview. March is a very busy month, packed with many market-moving global events. This week in the Weekly Economic Commentary we break down the month and give our take on the most important events on the calendar. From the ECB, to the Fed, elections in Holland, Brexit developments, and the China National People’s Congress Meeting – March is one month you need to be ready for and we’ll help.
- Durable Goods Orders and Shipments (Jan)
- Dallas Fed Mfg. Report (Feb)
- Kaplan (Hawk)
- Eurozone: Money Supply and Bank Lending (Jan)
- Germany: Retail Sales
- UK House of Lords Begins Debate on Article 50
- Chicago Area Purchasing Managers Report (Feb)
- Richmond Fed Mfg. Report (Feb)
- Williams (Dove)
- Bullard (Dove)
- Eurozone: CPI (Feb)
- President Trump Addresses a Joint Session of Congress
- China: Official Mfg. PMI (Feb)
- China: Official Non-Mfg. PMI (Feb)
- China: Caixin Mfg. PMI (Feb)
- ISM Mfg. (Feb)
- Vehicle Sales (Feb)
- Beige Book
- Kaplan (Hawk)
- UK: Bank Lending and Money Supply (Jan)
- Germany: CPI (Feb)
- Canada: Bank of Canada Meeting (No Change Expected)
- Challenger Job Cut Announcements (Feb)
- Mester (Hawk)
- China: Caixin PMI Services (Feb)
- Japan: Jobless Rate (Jan)
- ISM Non Mfg. (Feb)
- Yellen (Dove)
- Fischer (Dove)
- China: National People’s Congress Meeting Begins in Beijing