General market news
- The yield on the 10-year Treasury opened at 2.55 percent on Monday morning, up from 2.40 percent, where it started the year, but below its recent high of 2.59 percent. As actions by the Federal Reserve (Fed) continue to affect the short end of the yield curve, the longer end has stayed quite stable. The 30-year remains well below 3 percent at 2.83 percent, while the 2-year is now above 2 percent.
- S. markets continued their strong start to 2018. On the back of synchronized global growth and positive investor sentiment, all three major U.S. indices posted gains greater than 1.6 percent. Strong December retail sales and a hawkish tone from the European Central Bank minutes, both released last week, supported the global growth theme that has played out through the start of the year. Strong holiday sales favored stocks such as Target Corporation (TGT) and Kohl’s Corporation (KSS). The top-performing sectors for the week included industrials, energy, and consumer discretionary. Meanwhile, the bond proxies—the REIT, telecom, and utilities sectors—lagged.
- This week also kicked off earnings season. A number of large financial companies reported, including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), BlackRock, Inc. (BLK), and PNC Financial Services (PNC). All beat their earnings estimates, but Wells Fargo’s legal expenses from the prior year continued to weigh on revenues.
- Last week was relatively quiet in terms of economic news, with only three major data releases. On Thursday, the Producer Price Index came in below expectations, showing 2.3-percent growth on an annualized basis. This measure of producer inflation also declined on a month-over-month basis.
- On Friday, the Consumer Price Index beat expectations by growing at a 1.8-percent annual rate. Both of these measures of inflation remain near the Fed’s stated 2-percent target.
- Also on Friday, December retail sales remained strong, with 0.4-percent growth on a month-over-month basis. Given the strength of this figure, overall fourth-quarter growth may have been faster than previously expected. What to look forward to
This week’s economic news will offer a look across the economy.
The industrial production report will be released on Wednesday. It is expected to show that growth ticked up from 0.2 percent in December to 0.4 percent in January on increased drilling and oil production. Manufacturing growth also is expected to tick up, from 0.2 percent in December to 0.3 percent in January, on strong global demand. There may be some downside risk in these estimates, after strong growth in recent months. Even if there is a slowdown, however, the overall trend remains positive.
Turning to housing, the National Association of Home Builders survey of homebuilder confidence also will be released on Wednesday. It is expected to drop slightly, from 74 in November—which was close to a 19-year high—to a still-strong 72, as demand for housing remains solid and prices continue to rise. Housing starts, released on Thursday, are expected to drop back to 1.27 million in December from 1.297 million in November. This slight pullback would signal that the industry remains healthy, despite shortages of labor, land, and materials.
Finally, on Friday, the University of Michigan consumer confidence survey is expected to rebound from 95.9 in December to 97.0 in January. The record stock market and strong job growth are expected to drive confidence higher. Historically, this level of confidence has indicated continued growth.
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