Weekly Market Update, February 20, 2018

Presented by Mark Gallagher

General market news
• The yield on the 10-year Treasury opened at 2.89 percent early Tuesday morning, in line with where it opened early last week. The 30-year, at 3.15 percent, is seeing more resistance than is the short end of the curve. This will likely make it harder for longer rates to break significantly higher in the near term.
• All three major U.S. indices were up more than 4 percent last week. The S&P 500 saw gains in all five trading sessions. Further, every sector was up for the period, with technology, financials, and industrials leading the way.
• Wednesday’s Consumer Price Index data reaffirmed that inflation is moving higher in 2018. This data aligned with wage data from two weeks prior, which is what helped spur the sell-off. Despite confirmation of the inflationary trend, equity markets recouped some of their losses from the sell-off, as investors responded favorably to positive earnings news.
• Indeed, earnings guidance continued to be strong. With approximately 80 percent of S&P 500 companies reporting, the blended earnings growth rate for the fourth quarter is currently 15.2 percent, according to FactSet. This is the highest level since the third quarter of 2011. In addition, nearly all companies that have reported thus far have seen a positive surprise in sales.
• A number of key data points were released last week. As mentioned above, we saw Consumer Price Index data on Wednesday. The index increased by 2.1 percent on an annual basis, exceeding expectations for 1.9-percent growth. This was followed by the Producer Price Index on Thursday, which also came in higher than expected. Given the healthy economy and rising wages, the Federal Reserve (Fed) will be paying close attention to accelerating inflation.
• On Wednesday, retail sales for January came in lower than anticipated, declining 0.3 percent rather than growing the expected 0.2 percent. Core sales, which strip out volatile auto and gas sales, stayed flat during the month. While this was disappointing after strong growth in December, seasonality may have affected the data.
• Finally, on Friday, the University of Michigan consumer sentiment survey surprised to the upside. It rose to 99.9, beating expectations for a slight decline to 95.5. This is positive, given the recent stock market volatility, and shows that consumer confidence remains strong.

Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 4.37% –3.09% 2.45% 18.71%
Nasdaq Composite 5.36% –2.21% 5.03% 25.92%
DJIA 4.36% –3.31% 2.37% 25.20%
MSCI EAFE 4.29% –3.47% 1.38% 21.78%
MSCI Emerging Markets 5.03% –4.31% 3.65% 30.13%
Russell 2000 4.48% –1.92% 0.64% 11.78%

Source: Bloomberg


Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market –0.98% –2.12% 0.90%
U.S. Treasury –0.83% –2.17% –0.28%
U.S. Mortgages –0.73% –1.89% 0.35%
Municipal Bond –0.34% –1.51% 3.11%

Source: Morningstar Direct

What to look forward to
The week ahead will be a slow one for economic data.

The only real news will be the release of the minutes from the last Federal Open Market Committee meeting. Markets will be looking for confirmation that the Fed expects to hike rates by another 25 basis points at the March meeting. The statement from the January meeting was relatively optimistic, so the minutes should provide some color as to how many participants shared that view.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.


Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®