Thanks to a strong rally on Friday, U.S. stocks ended in the green for the second straight week.
Stocks seemed headed for their third losing week in the past four but opened higher on Friday and continued to pick up steam the rest of the day, with the major averages ending at session highs. The Dow rose 1.4% Friday to end the week with a 0.4% gain, while the S&P 500 rose 1.6% to finish up 0.6% for the week. NASDAQ continued to lead the pack, climbing 1.8% Friday to end the week 1.4% higher. Despite the gains, all three indexes remain in the red for February with three trading days to go but up year to date. Foreign stocks were mostly higher. The Stoxx Europe 600 eked out a 0.1% weekly gain thanks to Friday’s 0.2% rise. In Asia, the Shanghai composite index jumped 2.8% despite Chinese markets being closed several days for the Lunar New Year holiday. Japanese stocks gained 0.8%.
Stocks got a boost from a rally in the bond market on Friday. Yields on U.S. Treasury securities were modestly higher for the week although down from their peaks earlier in the week. The benchmark 10-year note, for example, ended Friday at 2.87%, just about unchanged from the previous Friday although it did spike to 2.95% on Wednesday before settling back down. The 30-year bond closed at 3.16%, up three basis points for the week after reaching 3.22% on Wednesday. Yields on the short end were up about five bps on the week.
The minutes of the Federal Reserve’s January 30-31 monetary policy meeting, released last week, indicate pretty strongly that the Fed will raise interest rates at its March meeting, the first to be chaired by new Fed chief Jerome Powell. “A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate,” the minutes said. Despite that thinking, the Fed left rates unchanged last month, the last meeting chaired by Janet Yellen. Powell may provide more insight into his and the Fed’s rate strategy this week when he makes his first congressional appearance as Fed chair to deliver his semiannual monetary policy report to the House Financial Services Committee.
Only two significant economic reports were released last week, one positive, one negative. On the up side, the Conference Board’s index of leading economic indicators rose for the fourth straight month, rising an even 1.0% in January to 108.1, beating the consensus forecast. The index “continues to point to robust economic growth in the first half of 2018,” said Ataman Ozyildirim, director of business cycles and growth research at the Conference Board. But on the down side, existing home sales fell 3.2% in January from the previous month to an annualized rate of 5.38 million, well below forecasts. Compared to a year earlier, sales fell by 4.8%, the steepest annual decline since August 2014. “It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth,” which is hurting sales, said Lawrence Yun, the National Association of Realtors’ chief economist.
Reports/dates/facts/links worth paying attention to over the next week:
1. February 26: Chicago Fed national activity index for January; new home sales for January.
2. February 27: Durable goods orders for January; S&P Corelogic Case-Shiller home price indexes for December; Conference Board consumer confidence index for February; Federal Reserve Chair Jerome Powell to deliver his semiannual monetary policy report before the House Financial Services Committee.
3. February 28: Pending home sales for January; fourth quarter GDP, first revision.
4. March 1: Weekly unemployment claims; personal income and outlays for January; Institute for Supply Management manufacturing index for February; construction spending for January; auto sales for February.
5. March 2: University of Michigan consumer sentiment index for February, second reading.
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