- U.S. equities finished positive for the week: On the week, the Standard & Poor’s (S&P500) index gained 15 points, or rose 0.55%, to 2,747. The Dow Jones Industrial Average (DJIA) closed 91 points higher, or rose 0.36% to 25,310. The Nasdaq closed 1.35% higher at 7,337, while the 30-year Treasury rose to 3.16%.
- Inflation fears: Last week, The U.S. Federal Reserve released minutes from its January rate-setting meeting, which signaled growing confidence in the U.S. economy and rising inflation, bolstering plans to continue raising short-term interest rates this year. Fed officials concluded that upside risks to their economic growth projections had increased thanks to tax cuts, and increased consumer confidence and spending among other indicators.In addition, most Fed officials expect inflation will move towards the Fed’s 2% target in the medium term as the U.S. economy continues to expand. Although the Fed’s preferred inflation measure is the core Personal Consumption Expenditure (PCE) index which mired around 1.5% in 2017, U.S. Consumer Price Index (CPI – another measure of inflation), increased 0.5% during January and 2.1% over the last 12 months, both above expectations of +0.3% and +1.9%, spooking financial markets temporarily. Core CPI (ex-food and energy) was up 0.3% in January and up 1.8% over the past 12 months, also above expectations. Following these data points, investors are closely watching inflation signals and commentary from the Fed, which could introduce some volatility into the markets as we have seen in the last few weeks.
With that said, the Federal Open Market Committee (FOMC) seems committed to a cautious path to “normalizing” rates from an exceptionally easy policy of zero rates. The current odds for a March rate hike are 100%, with 85% at 25bps and 12% for a 50bps hike.
- Fourth quarter earnings continues to wind down this week, with earnings releases expected from Macy’s, Lowe’s, American Tower Corp, TJX Companies, Anheuser-Busch InBev and Gap, Inc among others.
- On Tuesday, the market will be watching closely as Fed Chair Jerome Powell delivers his semiannual monetary policy report to the House Financial Services Committee and his testimony before the Senate Banking Committee on Thursday.
- On the economic calendar, we will see new home sales on Monday, followed by advance goods and durable goods order numbers on Tuesday and a second look at fourth quarter gross domestic product (GDP) and Chicago purchasing manager’s index (PMI) on Wednesday. On Thursday, we will see vehicle sales and core personal consumption expenditure (PCE) index. Internationally, we will see Euro-zone harmonized indices of consumer prices (HICP) and core inflation numbers on Wednesday, and China PMI late Wednesday/early Thursday, with Euro-zone ISM and PMI on Thursday