Talk of a tax cut lifted U.S. stocks to new record levels last week.
Stock prices had been moving mostly sideways until Thursday, when President Trump said he would be making an announcement within the next three weeks that would be “phenomenal in terms of tax.” NASDAQ once again led the way with a 1.2% gain for the week, while the Dow rose 1.1% and the S&P 500 increased 0.9%. So far this year, NASDAQ is up 6.5% in price, well ahead of the S&P’s 3.5% increase and the Dow’s 2.6% rise. All three indexes hit their all-time highs during the day on Friday although they finished just below those levels at the end of trading.
Foreign stocks also got a lift from the U.S. news. European stocks, as measured by the Stoxx Europe 600, were up almost 1% on the week despite signs of yet another Greek debt crisis. The country has an €8 billion payment due in July, which investors are worried that the country won’t be able to make without more international aid. Elsewhere in Europe, European Central Bank President Mario Draghi warned against the premature withdrawal of ECB stimulus measures, which several officials have been calling for recently as the euro zone economy has been improving and inflation rising, particularly in Germany. Asian stocks rebounded from the previous week’s losses, rising about 2% on average, led by a 2.4% rise in Japan’s Nikkei 225 index.
Global sovereign bond prices were also mostly higher last week, reducing yields. In the U.S., the yield on the benchmark 10-year Treasury note ended the week at 2.41%, down five basis points on the week, although it had fallen as low as 2.33% on Wednesday, when the government sold a new note issue. The 30-year long bond closed at 3.01%, down eight bps. In Europe, the yield on the 10-year German bund fell 10 bps to 0.32%.
It’s not necessarily a good omen, but writers of investment newsletters are more bullish than they have been in more than a decade. Investors Intelligence said 62.7% of the more than 100 newsletter writers it surveys each week for its Sentiment Index are bullish, the highest level since 2004. However, the index has a reputation of being a contrarian indicator, possibly signaling a market top.
It was a very quiet week for government economic statistics, but that changes this week. Producer and consumer price indexes for January come out on Tuesday and Wednesday, respectively, while retail sales and industrial production get reported on Wednesday. Janet Yellen testifies before Congress on Tuesday and Wednesday. Leading indicators come out on Friday.
Reports/dates/facts/links worth paying attention to over the next week:
1. February 14: Producer price index for January; Federal Reserve Chair Janet Yellen gives her semiannual monetary policy testimony before the Senate Banking Committee.
2. February 15: Consumer price index for January; retail sales for January; industrial production for January; National Association of Home Builders housing market index for February; Empire State manufacturing survey for February; Yellen testifies before the House Financial Services Committee.
3. February 16: Weekly unemployment claims; housing starts for January; Philadelphia Fed business outlook survey for February.
4. February 17: Leading economic indicators for January.