The Market Today
Fly Yields Fly? Higher Interest Rates Continue to Batter Stocks
by Craig Dismuke, Dudley Carter
This Week’s Calendar – Washington Spending Negotiations, Quiet Economic Calendar: After a blistering week of economic news, including predominately strong data, this week’s calendar is notably more quiet. The most important report of the week will be this morning’s ISM Non-Manufacturing Activity report scheduled for 9:00 a.m. CT – likely the only economic report that could move the markets by any noticeable amount. The index is expected to rebound from 55.9 to 56.7 after falling from almost 60 back in October. December’s Trade Balance (Tue) and Wholesale Inventories (Fri) reports will help sharpen the pencil for 4Q GDP estimates. Tuesday’s Job Openings and Labor Turnover will give a little more color to the labor data. Bloomberg’s Survey of Economists is scheduled for Thursday. Given the light calendar, investors should remain focused on 1) Congressional spending authority scheduled to end on Thursday, 2) corporate earnings, and 3) the impact of higher interest rates on asset valuations this week.
Overnight Activity – Equities Enter Round Two of the Sell-Off with Their Knees Already Wobbling: The turmoil that tanked U.S. markets on Friday has roiled global equities to start the week. Stocks sank across Asia and Europe Monday after the Dow reported its biggest point drop on Friday since December 2008 (on a percentage basis, the biggest since Brexit). Pre-market futures trading indicates U.S. equities will tumble again at the open with Dow contracts down another 160 points. While the equity sell-off has continued, sovereign yields have stabilized and moved lower in both Europe and the U.S. The 2-year U.S. Treasury yield is down 0.8 bps to 2.13% with the 10-year yield down 1.1 bps drop taking the 10-year yield at 2.83%. The belly of the curve has moved more with the 5-year yield down 2.4 bps to 2.57%. In the economic news, China’s Caixin composite PMI rose to its strongest level since 2011 before another round of a positive PMIs across Europe.
ICYMI – February 2, 2018 Weekly Market Recap: The most memorable story from last week was the volatility that rocked U.S. equity markets on Friday and gave the Dow one of its biggest point drops in the index’s history. Rising rates has become a downward pressure on equity investors’ sentiment as of late and that trend was unbroken last week. The risk-free U.S. yield curve shifted higher last week and steepened the most since 2016. A week of mostly positive economic data was split by an optimistic Fed decision and capped by a stronger-than-expected jobs report. The Fed’s favorite inflation metric (PCE YoY) firmed for a fourth month but still rounded to 1.5%. Fed officials expect it to continue to “move up this year” based on the language in the latest Statement which also sounded a strong note for the economic outlook. That optimism should have been reaffirmed by Friday’s jobs report which showed stronger-than-expected hiring and the fastest wage growth since 2009. Click here to see the full recap.
January 2018 Monthly Review: Stocks extended their impressive run as tax-cut optimism and positive corporate earnings helped absorb a nervousness created by a rapid rise in interest rates. Click here to see the full monthly review.