February Close
February Ending and HTX Rodeo Kick-off:
The S&P500 lost ground for its third consecutive week as concerns rose surrounding the Federal Reserve’s fight against inflation having yet to reach the final innings. We enter this week oversold on the charts having navigated a quite normal weak February in the S&P500.
The S&P500 index closed -2.7% lower at 3,970 down from the prior week’s close of 4,079. Only the energy sector ended higher on the week. Year-to-date, the S&P500 has still gained +3.4%. The Treasury markets sold off last week with the 10-year Treasury rate jumping 13 bps last week to a 3-month high of 3.95%. The 2-year rate spiked 19 bps to 4.81%, the highest since 2007.
A combination of better-than-expected economic data and higher inflation news cast doubt on a Goldilocks landing for the economy. While historically a bad predictor, Fed funds futures are now pricing in three more rate hikes of 25 basis points. Friday’s news of surging personal spending and prices in January means the Fed will keep tightening, even as the full effects of past rate hikes is still to come.
The stronger data has caused a rebound in the U.S. dollar from oversold levels. This in turn has halted the broad rally in foreign stocks and on foreign index outperformance. Emerging market equities have been hardest hit, down –5.8% in February.
The Nasdaq 100 has erased gains from the past month. The S&P 500 earnings yield currently sits 50 basis points under the yield on Baa-rated corporate bonds, a dynamic not seen in 14 years. The Bloomberg bond Aggregate index, which rose +3.9% in January, has given back virtually all those gains. High-yield bonds have held steady despite equity market performance, supported by yields of 8.5%.
4th quarter earnings season is coming to a close this week with many retailers reporting. These include many retailers such as COST, TGT, LOW, AAP, AZO, BBY, DLTR, KR, ROST, KSS, BURL, and M. Other names reporting include MNST, WEN, CRM, WDAY, AVGO, OKTA, DELL, OXY, OKE, UHS, and A. Last weeks shining star was Nvidia (NVDA) rallying +14% on Tuesday on the back of fast growth in their data centers and an optimistic future outlook due to AI investments.
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