Via Nova Market Update Week ended 2/23/18
- Fed to the rescue again: Stocks finished a rollercoaster ride on the plus side, helped by a favorable Monetary Policy Report on Friday.
- Mostly positive news in a light economic calendar.
- Q4 earnings reports winding up on a very healthy note.
- Coming Week: A full calendar of economic reports, but new Fed Chair Jerome Powell’s Congressional testimony scheduled for Tuesday and Thursday will be the focus for markets.
Fed to the rescue again: Stocks finished a rollercoaster ride on the plus side, helped by a favorable Monetary Policy Report on Friday.
The S&P 500 stumbled early in the holiday-shortened week but rallied Friday to finish in the black after a Federal Reserve report to Congress suggested it was not inclined to change its “gradual” approach to raising interest rates this year. The index has recovered over half of the 10%+ correction that ended February 8. Early market weakness was due in part to a Tuesday report from Walmart that growth in its online sales slowed, suggesting it had yet to find a formula to compete effectively with Amazon. Walmart, the largest company in the Staples sector by market capitalization, fell over -11% for the week, while the cyclical sectors in the S&P 500 gained, led by Technology and Materials stocks. The yield on the 10-year Treasury note edged a bit lower to 2.87%, while oil prices and the value of the dollar rose following recent weakness.
Mostly positive news in a light economic calendar.
Existing home sales in January were reported lower than expected, but jobless claims and the index of leading economic indicators pointed to an improving labor market and continued economic momentum, respectively. Early readings on February manufacturing activity showed slightly lower, but still robust levels. The minutes from the January 30-31 Federal Open Market Committee Meeting (FOMC) appeared to startle markets at first, but subsequent comments from Fed officials and the Friday release of its Monetary Policy Report suggested that FOMC members saw little need to alter their stated plans to raise short term rates just three times this year instead of four rate hikes feared by many analysts.
Q4 earnings reports winding up on a very healthy note.
With 90% of S&P 500 companies reporting, Thomson Reuters estimates that fourth quarter 2017 earnings are on pace to rise 15.3% compared to 12.0% projected on December 31. Over three-quarters of companies beat earnings estimates. Energy companies reported the highest year-over-year increase (121%) after experiencing a difficult couple of years, followed by Materials (36% growth) and Technology (20% growth) companies.
Coming Week: A full calendar of economic reports, but new Fed Chair Jerome Powell’s Congressional testimony scheduled for Tuesday and Thursday will be the focus for markets.
Most expect Powell to deliver a non-controversial message of continuity, as he takes the helm following Janet Yellen, but “rookie mistakes” are not uncommon by new Fed Chairs. The economic reports of note include the ISM manufacturing index and auto sales for February, along with new orders for durable goods and personal income for the month of January.