General market news
- Rates rose higher late last week, as the 10-year Treasury moved from 2.65 percent to 2.76 percent and opened at those levels on Monday. The 30-year Treasury came in at 3.11 percent, while parts of the short end of the curve remained inverted. The 2-year Treasury opened at 2.55 percent Monday, after being as low as 2.47 percent late last week.
- The three major U.S. indices were all up once again last week. The Nasdaq led the way, with technology among the three top-performing sectors, alongside energy and financials. Amazon, Microsoft, Alphabet, and Apple were among the top contributors for the S&P 500. These results reflected the return of flows into equities.
- The two major news stories last week were the U.S.’s agreement to delay its $200 billion March 1 tariff deadline with China and the testimony of Fed Chair Jerome Powell in front of the House and Senate. The market did not have a strong reaction, as the tariff deadline concession was widely expected. In addition, Chair Powell continued to preach patience to both sets of representatives. One takeaway from his testimony was that, as it now stands, he expects the central bank to end its balance sheet runoff in the later part of the year.
- Last week saw the release of a large number of economic data points. On Tuesday, December’s housing starts and building permits were mixed, with starts declining by more than expected but permits increasing slightly. Also on Tuesday, the Conference Board consumer confidence survey came in much better than expected, with a reading of 131.4 against expectations for 124.9.
- On Wednesday, January’s pending home sales rose by 4.6 percent, which was more than expected following a decline in December. On Thursday, the first estimate of fourth-quarter gross domestic product growth came in at 2.6 percent, which was above expectations but lower than the growth rate seen in the third quarter.
- Finally, on Friday, January’s personal income report showed a decline of 0.1 percent against expectations for a slight increase. December’s personal spending report also disappointed, with a decline of 0.5 percent to end the year.
|MSCI Emerging Markets||–0.65%||0.06%||9.08%||–9.27%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.20%||0.80%||2.68%|
Source: Morningstar Direct
What to look forward to
This will be a busy week of economic data that should provide further insight on whether the recent spate of weak reports is likely to continue.
On Tuesday, the Institute for Supply Management’s Nonmanufacturing index is expected to rise slightly, from 56.7 to 57.2, after a significant drop in recent months. This is a diffusion index, where values greater than 50 indicate expansion and less than 50 indicate contraction. So, this would be a very healthy figure.
On Wednesday, the international trade report is expected to show the trade deficit has worsened, going from $49.3 billion to $54.2 billion, after an improvement last month. Advance reports show that the goods deficit rebounded in December, as exports have continued to decline. If the data comes in as expected, this will be a headwind to fourth-quarter growth.
On Friday, the employment report is expected to decline from 304,000 in January to 185,000 in February. The unemployment rate likely will tick back down to 3.9 percent from 4 percent, while wage growth is expected to rebound from 0.1 percent to 0.3 percent. These results would provide more assurance that economic fundamentals are sound, despite recent weakness.
This week’s data will also shed some light on the housing market. On Friday, the housing starts report is expected to show a rebound from 1.08 million to 1.18 million, annualized. While this recovery would be helpful, recent weakness has been widespread enough that it would suggest only stabilization.