- Markets cautious ahead of Fed speakers, Trump. (10:23am ET) U.S. indexes are off slightly this morning as markets anticipate speeches by several Federal Reserve members, as well as President Donald Trump’s first address to a joint session of Congress this evening. On Monday, the Dow (+0.1%) inched higher for its twelfth consecutive gain; the S&P 500 (+0.1%) and Nasdaq (+0.3%) were also up on the day. Energy (+0.9%) was the best performing S&P sector despite a lackluster day for oil; while telecom (-1.2%) and utilities (-0.6%) struggled amid a rise in Treasury yields. A relatively quiet session in Asian trading left regional indexes mixed overnight as the Shanghai Composite (+0.4%) advanced while the Hang Seng (-0.8%) fell and the Nikkei (+0.1%) was largely unchanged. In Europe, stocks have meandered throughout the session; the STOXX Europe 600 is up 0.1%. Meanwhile, WTI crude oil ($53.51/barrel) continues to trade in a tight range above its 50-day moving average, COMEX gold ($1258/oz.) is slightly lower, and Treasuries are up modestly as the yield on the 10-year note has ticked down to 2.35%.
- U.S. Treasury yields end week lower but remain range bound. Despite decent economic data pointing to higher inflation, yields ended the week lower with the U.S Treasury 10-year bond moving from 2.42% to 2.31%. Year to date, the U.S. 10-year Treasury is lower in yield by 14 basis points (0.14%). The 2-year note has been range bound all year closing between 1.12% and 1.25%, the 5-year has fluctuated between 1.75% and 2.00%, and the 10-year has been tight, between 2.30% and 2.55%, a 0.25% range. Despite the common headlines of rising rates, yields increases have been muted.
- Flatter yield curve on the week. The 2-year Treasury was slightly lower in yield on the week but not as much as the 10-year yield. This brings the 2’s to 10’s slope, a measure of the steepness of the yield curve, to 1.19%, flatter by 0.02% on the week. However, the 2’s to 30’s yield slope steepened on the week by 0.01% to 1.83% as the 30-year Treasury bond finished the week yielding 2.95%.
- Inflation expectations rise, growth expectations decline. Inflation expectations as measured by the 10-year breakeven inflation rate rose last week from 2.00% to 2.03% according to Federal Reserve Bank (Fed) Economic Data. The 2.03% level is above the Fed’s 2% inflation target and the highest reading year to date. Additional economic strength and improving oil prices could cause inflation to move higher. The bond market downplayed the improving growth story last week, however, as the 10-year real yield (the Treasury Inflation-Protected Securities yield) moved lower by 0.10%.
- International bond prices improve in Greece, France, and Germany; weaker in Italy and Spain. The 10-year Italian government bond yield was higher on the week by 0.02% to 2.19%, and higher by 0.38% year to date. Spain was also weaker by 0.06% on the week from 1.64% to 1.70% as investors preferred government bonds of higher quality. This is demonstrated by the German 2-year yield declining from -0.82% to -0.96%. The German 10-year finished the week at +0.18% (lower in yield by 0.12%). French bonds performed well on positive news, lower by 0.10% in the 10-year from 1.03% to 0.93%. The outperformer for the week came out of Greece with the Greek 2-year gaining 3.6% in price, lower in yield by 1.96% on news that the negotiating parties might come to an agreement on Greek default payments.
- Municipal bond supply is muted. The Bond Buyer’s 30-day visible supply totaled $9.9 billion. Month-to-date through February 24, supply has been $19.5 billion. Lipper reported the seventh consecutive week of municipal bond fund inflows, with $149 million for the week ending February 22.
- Emerging market debt (EMD) spreads continue to tighten, but risks remain. In this week’s Bond Market Perspectives, we take a look at the delicate balance of EMD. Its continued recovery after the post-election selloff has been reflected in its strong performance year to date (3.5% as of 2/24/2017 for the JPMorgan Emerging Market Bond Global Index). Its high yield in a low-yielding world has been a tailwind, but risks of aggressive Fed rate hike policy or protectionist trade policy remain for the asset class, leaving us neutral overall.
- What to watch for in President Trump’s address. We would highlight the following four key topics in President Trump’s address to a joint session of Congress tonight: Tax reform, the Affordable Care Act (ACA), infrastructure spending, and defense. Expect little detail on tax reform and healthcare-two areas where investors crave details-but the address should help markets prioritize. We will be looking for anything that changes our expectations that: a) tax reform is unlikely until late 2017 and may slip into 2018, b) the ACA overhaul will be incremental and take at least two years, c) infrastructure spending will come but may be a year or more away and is unlikely to come anywhere close to the dollar amounts Trump has suggested, and d) defense spending will be increased but budget hawks in Congress won’t make it easy. We do not expect any policy disappointments as foreign trade, a source of some market angst, is not expected to get much airtime and expectations for the speech are low.
- Another day, more new highs. The S&P 500 and Dow made new all-time highs yesterday, while the Nasdaq, Russell 2000 (small caps), and S&P 400 Mid Cap Index all just missed record highs. The headline story remains the Dow, which is now up 12 days in a row. This is the longest win streak since 13 in a row in January 1987. What is special about this streak is all 12 days have made a new all-time high, tying the all-time record (going back 120 years) also set during January 1987. The Dow isn’t soaring though, as the last four days sported gains of only 0.16%, 0.17%, 0.05%, and 0.08%. The all-time win streak for the Dow was 14 days in a row clear back in 1897.
- March in like a lion? March historically has been one of the stronger months for the S&P 500, and lately it has been very strong. It has returned 2.7% on average over the past 10 years, making it the top performing month (April is second at 2.6%). What happens when both January and February are green (as 2017 is shaping up)? In those instances, March is higher 19 out of 26 times (73.1%) going back to 1950. Also, the S&P is poised to be up four consecutive months once February is in the books. When the S&P 500 enters March with a monthly win streak of four months or more, then March actually does better – up 11 of 13 times since 1950, with an average return of 2.3%. We will take a closer look at the month of March today on the LPL Research blog.
 Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
- Talk about persistence. The S&P 500 closed above its five-day moving average for the sixteenth consecutive day yesterday. This is extremely rare and shows how there hasn’t been any hint of a pullback recently. This is the longest such streak since 29 consecutive days in November 2014.
- 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