Stocks staged another Friday afternoon rally but it wasn’t nearly enough to push the major U.S. indexes out of the red for the week.
After opening sharply lower Friday, the Dow finished with a relatively modest 0.3% loss for the day but down an even 3% for the week, putting it into negative territory for the year to date, down 0.3%. The S&P 500 gained 0.5% Friday but was still off 2.0% for the week, although it remained 1% higher for the year. NASDAQ lost 1.1% for the week despite gaining that much on Friday and still holds a 5.3% YTD gain. Stocks started off on a positive foot on Monday but continued to fall the rest of the week before Friday’s rebound. Investors were unsettled by comments by Federal Reserve Chair Jerome Powell on Tuesday that the Fed was on target to raise interest rates gradually the rest of the year and Thursday’s announcement by President Trump of new tariffs on foreign-made steel and aluminum that some fear could ignite a trade war and thus hurt the economic recovery.
Bonds were little changed on the week as Powell made his first appearance before Congress as Fed chief. On Tuesday, before the House Financial Services Committee, he sounded rather hawkish. “My personal outlook for the economy has strengthened since December,” he said. “We’ve seen continuing strength in the labor market. We’ve seen some data that will in my case add some confidence to my view that inflation is moving up to target,” justifying “further gradual increases in the federal funds rate.” But two days later, before the Senate Banking Committee, he talked that back a little. “There’s no evidence that the economy is currently overheating,” he said, adding that “nothing in that suggests to me that wage inflation is at a point of acceleration.” That eased concerns about a spike in interest rates. The tariff announcement also depressed bond yields. The benchmark 10-year Treasury note ended the week at 2.86%, down one basis point on the week.
There were a large number of U.S. economic statistics released last week as February came to an end. Fourth quarter GDP was revised slightly downward to an annualized growth rate of 2.5% from 2.6%, but in line with expectations. The Institute for Supply Management’s manufacturing index for February rose 1.7 points to 60.8, its highest level since May 2004. The headline durable goods orders number for January fell 3.7%, down 0.3% after excluding the volatile transportation sector, while core capital goods, a proxy for business investment, fell 0.2%. All of those numbers were worse than expected, as analysts were looking for a tax-related boost in spending. Construction spending was flat. On the bright side, the Conference Board said its consumer confidence index jumped 6.5 points in February to 130.8, its highest level since November 2000. Likewise, the University of Michigan’s consumer sentiment index ended the month at 99.7, up four points from its January reading. Personal incomes rose a strong 0.4% in January while consumer spending rose 0.2%. The core personal consumption expenditures index, the Fed’s main inflation indicator, rose 0.3%, 1.5% on an annual basis. Auto sales for February came in at an annual rate of 17.1 million vehicles, in line with expectations.
But housing sector numbers were weak. Pending home sales, a forward indicator of actual closings, fell 4.7% in January to an index reading of 104.6, its lowest level since October 2014. In the new-home category, sales dropped 7.8% to an annual rate of 593,000. One of the reasons behind weak sales is rising prices which, when combined with rising mortgage rates, are pricing many prospective homebuyers out of the market. The S&P CoreLogic Case-Shiller national home price index rose 0.6% in December from the prior month and 6.3% compared to the year-earlier period.
Reports/dates/facts/links worth paying attention to over the next week:
1. March 5: Institute for Supply Management nonmanufacturing index for February.
2. March 6: Factory orders for January.
3. March 7: ADP national employment report for February; Federal Reserve Beige Book.
4. March 8: Weekly unemployment claims.
5. March 9: Employment situation for February.
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