Market Update: Friday, February 2, 2018

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Market Recap

  • U.S. equities closed mixed after up-and-down trading. Few catalysts behind day’s movement, but caution remains as yields could be a headwind for future gains. S&P 500 Index flat, Dow +0.1%, Nasdaq -0.4%, Russell 2000 +0.3%.
  • Telecommunications finished largely ahead (+2.5%); energy, financials outperforming as well. Rate-sensitive REITs, utilities notable laggards after significant yield advance.
  • Market breadth diverged again between NYSE (-1.2:1), Nasdaq (+1.1:1); NYSE trade volume slightly above 30-day avg. (~103%).
  • Treasury yield curve steepened sharply; 10-yr. note soared +7 basis points (+0.07%) to 2.78%.
  • Commodities: WTI crude oil regained week’s early losses (+2.1% to $66.09/bbl.), COMEX gold bumped higher (+0.8% to $1353/oz.), industrial metals mixed.
  • Economic data: Federal Reserve’s (Fed) balance sheet assets now $4.19 trillion–down $46 billion since unwinding began in October 2017. Domestic construction

Overnight & This Morning

  • U.S. equities opened sharply lower with interest rate jitters intensifying. S&P 500 opened 0.6% lower, though well off overnight lows. Stocks poised for biggest weekly drop since the 2016 election.
  • European stocks down ~1% midday, driven by rate fears, bank weakness. STOXX Europe 600 -0.9%, down for fifth straight day; DAX -1.1%, FTSE 100 -0.3%. 10-year German bund +0.03% to 0.75%.
  • Asian markets closed mixed after Bank of Japan (BOJ) bond-buying pledge. Nikkei -0.9%, Shanghai Composite +0.4%, Hang Seng -0.1%. Yen weaker following BOJ offer to buy unlimited intermediate-term bonds.
  • Treasury yields push higher; 10-yr. yield up 4 basis points (+0.04% to 2.83%).
  • Commodities: Oil little changed at $65.80/bbl., gold (-0.3% to ~$1345/oz.) on 0.4% gain in the U.S. Dollar Index; copper slightly lower.
  • Economic releases: Nonfarm payrolls topped consensus with 200K jobs created in January vs. 180K consensus; unemployment rate holds at 4.1%. Durable goods and consumer confidence on tap.

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Macro Notes

  • ISM Manufacturing Index signals acceleration. Yesterday’s better-than-expected ISM Manufacturing Index, at 59.1, is a positive economic signal for the economy and the corporate profit outlook. In fact, this reading is consistent historically with gross domestic product growth in the 3.0-3.5% range. Of the five indicators that compose the index–new orders, production, employment, supplier deliveries, and inventories–new orders came in the strongest at 65.4, a 10-year high, and employment came in the weakest, but still expansionary, at 54.2 (today’s strong jobs report confirms the job market is doing just fine). The prices paid component (72.7) came in very strong and confirms the pickup in inflation observed in other data points.
  • Solid jobs report though wage pressures building. The U.S. economy created 200K jobs in January, better than the 180K consensus forecast and above the upwardly revised 160K number in December (revised from 148K). The unemployment rate remained unchanged at multi-decade lows at 4.1%. Wage pressures increased, with average hourly earnings rising 2.9% year over year, an expansion high and above last month’s upwardly revised 2.7% figure. This report, which may be contributing to the upward pressure we are seeing on bond yields this morning, supports the Fed’s forecast for three hikes this year and, on the margin, may tip the scales slightly toward four hikes this year being more likely than two (though our expectation remains three, consistent with the Fed’s base case).
  • Who are you rooting for on Sunday? Are you and the market rooting for the same team? Though hardly a relevant statistic for the stock market, the data don’t lie–the Super Bowl indicator shows that the S&P 500 Index has performed better on the year, and with greater consistency, when the Super Bowl winner comes from a particular conference. Is it the AFC or NFC? Check out our latest blog post to find out.

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Click Here for our detailed Weekly Economic Calendar

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Jan)
  • Unemployment Rate (Jan)
  • Average Hourly Earnings (Jan)
  • Average Weekly Hours (Jan)
  • Labor Force Participation & Underemployment Rates (Jan)
  • Durable Goods Orders (Dec)
  • Cap Goods Orders & Shipments (Dec)
  • Williams (Dove)
  • Eurozone: PPI (Dec)
  • Italy: CPI (Jan)

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

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