Monthly Archives: February 2018

Market Insights 2/28/2018

In what appears to be a common theme as of late, early gains for U.S. equities evaporated in the final hours of trading to finish at the lows of the day in another volatile session.

Investors appeared to remain skittish in the wake of yesterday’s first monetary policy testimony from Fed Chair Jerome Powell that fostered a hawkish takeaway.

News on the economic front was disappointing, as Q4 GDP was revised lower, and housing and manufacturing data fell short of forecasts.

Treasury yields pared a recent run and the U.S. dollar added to a rebound, while crude oil prices were lower following a bearish oil inventory report, and gold was little changed.

The Markets…

The Dow Jones Industrial Average fell 380 points (1.5%) to 25,029

The S&P 500 Index decreased 31 points (1.1%) to 2,714

The Nasdaq Composite declined 57 points (0.8%) to 7,273

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil tumbled $1.37 to $61.64 per barrel and wholesale gasoline lost $0.06 to $1.92 per gallon

The Bloomberg gold spot price shed $0.27 to $1,318.09 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 90.63

Q4 GDP revised as expected, housing and regional manufacturing data misses

The second look (of three) at Q4 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.5%, down slightly from the first release’s 2.6% gain and matching the Bloomberg forecast. The revision reflected a slight downward adjustment to private inventory investment. Q3 GDP grew by an unrevised 3.2% rate. Personal consumption was unrevised at a 3.8% gain for Q4, above expectations of a 3.6% increase. Personal consumption grew by an unrevised 2.2% in Q3.

On inflation, the GDP Price Index was revised to a 2.3% increase, versus expectations of an unrevised 2.4% gain, while the core PCE Index, which excludes food and energy, was unadjusted at a 1.9% increase, in line with forecasts.

The GDP report is backward looking and tomorrow’s economic calendar will bring some leading indicators in the form of February auto sales, as well as the ISM Manufacturing Index, projected to dip to 58.6 this month from 59.1 in January, with a reading above 50 denoting expansion. ISM new orders—a leading indicator tracked by the Conference Board—will likely garner attention after stepping back in January from the fastest pace of growth in 14 years, while the prices paid component of the ISM’s report will also likely be on the market’s radar amid the heightened scrutiny of a potential rising inflation landscape.

Pending home sales fell 4.7% month-over-month in January, versus projections of a 0.5% gain, and following the downwardly revised flat reading registered in December. Sales were 1.7% lower y/y. Pending home sales reflect contract signings and possible impact of the recent rise in interest rates, while being a gauge of the pipeline of existing home sales, which unexpectedly declined in January.

The MBA Mortgage Application Index rose 2.7% last week, following the prior week’s 6.6% drop. The increase came as a 1.2% decline in the Refinance Index was more than offset by a 6.2% gain for the Purchase Index. The average 30-year mortgage rate remained at 4.64%.

Treasuries were higher, as the yield on the 2-year note ticked 1 bp lower to 2.25%, the yield on the 10-year note lost 4 bps to 2.87%, and the 30-year bond rate declined 5 bps to 3.13%.

Bond yields extended a rally and the greenback added to a recent string of gains yesterday following the first Congressional monetary policy testimony from new Fed Chairman Jerome Powell, which appeared to foster a slightly more hawkish takeaway. Tomorrow, Powell will conclude his Congressional testimony, speaking to the Senate Banking Committee. His remarks are not expected to differ significantly from yesterday’s speech, but the Q&A session that follows could generate a reaction as the market familiarizes itself with the new Fed Chief.

Other reports due out tomorrow include: personal income and spending, weekly initial jobless claims, construction spending, and Markit’s Manufacturing PMI Index.

Europe declines as recovery attempt short-lived, Asia sees some pressure

After a brief late-day attempt at a recovery, European equities finished back below the flatline on the heels of yesterday’s first Congressional monetary policy testimony from U.S. Fed Chairman Jerome Powell that appeared to foster a hawkish reaction and snap a rally in the U.S. The U.S. markets also struggled to hold a recovery as the markets remained skittish.

The euro and British pound finished lower versus the U.S. dollar, which is extending a bounce as of late. Bond yields in the region traded mostly to the downside. The declines came as economic data out of China and Japan disappointed, while reports in the region showed France’s Q4 GDP growth unexpectedly accelerated to a 2.5% y/y pace, and Eurozone consumer price inflation slowed in February. The German unemployment change fell more than expected for this month. Earnings results in the region continued to pour in and were mixed.

Stocks in Asia finished lower following the retreat from a recent rally in the U.S. yesterday that came courtesy of a flare-up in Fed rate hike concerns after Chairman Powell delivered his first Congressional monetary policy testimony that seemed to strike a hawkish tone. Also some disappointing data in the region further dampened sentiment.

Stocks in Japan dropped, as the nation’s retail sales and industrial production figures for January both fell more than expected. Mainland Chinese equities and those traded in Hong Kong fell, as the country’s official Manufacturing and non-Manufacturing PMI Indexes both showed growth slowed more than anticipated for this month. Markets in Australia, South Korea and India declined, with the latter releasing data after the closing bell, which showed the country’s Q4 GDP expansion accelerated more than expected to a 7.2% y/y pace.

Random Thoughts

From an investment perspective, the S&P 500’s average performance in March has been more reminiscent of a lamb than a lion.

Since WWII, March has seen the third highest average price increase in the 500, behind December and April, delivering more than twice the average price gain registered for all months.

What’s more, the market has risen in price 65% of the time in March, ranking it shy of April’s 69% batting average and December’s 77% frequency of advance.

Its worst one-month return occurred in 1980 when it registered a 10.2% decline, which was still tamer than the average worst decline for all months.

Even though its best one-month performance ranks it in the middle of the pack, its standard deviation of returns was less than that for all months.

Finally, since hope springs eternal, March has seen an above-average frequency of recording new all-time highs.

Market Insights 2/27/2018

U.S. equities finished lower, paring the rallies over the past two sessions, following a slightly more hawkish takeaway from the first Congressional monetary policy testimony from new Fed Chief Jerome Powell.

News on the economic front was mixed, as a noticeable miss on the durable goods orders report countered a new 17-year high in Consumer Confidence.

Treasury yields and the U.S. dollar were both higher, while crude oil and gold prices were lower.

The Markets….

The Dow Jones Industrial Average (DJIA) fell 299 points (1.2%) to 25,410

The S&P 500 Index decreased 35 points (1.3%) to 2,744

The Nasdaq Composite declined 91 points (1.2%) to 7,330

In moderate volume, 895 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil shed $0.90 to $63.01 per barrel and wholesale gasoline lost $0.02 to $1.98 per gallon

The Bloomberg gold spot price was $15.21 lower at $1,318.47 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.6% higher at 90.38

Powell delivers initial Congressional testimony, headlining a heavy dose of economic data

Federal Reserve Chairman, Jerome Powell, delivered his first semi-annual Congressional economic and monetary policy testimony in front of the House Financial Services Committee. In his prepared remarks, Powell noted that the U.S. economy grew at a solid pace in the second half of 2017 and that the trend in average monthly job gains has been sufficient to push the unemployment rate to the lowest level since December 2000. He added that while many factors shape the economic outlook, “some of the headwinds the U.S. economy faced in previous years have turned into tailwinds,” highlighting a more stimulative fiscal policy and a firmer trajectory of foreign demand for U.S. exports. In reference to monetary policy the new Fed Chief stated that “the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.” During the Q&A session, Powell noted that the outlook for the economy has strengthened since December and confidence in inflation moving toward its target is getting stronger.

The Consumer Confidence Index rose to 130.8 in February, from January’s revised 124.3, versus estimates of a 126.5 reading. The Index registered a new 17-year high, as the Present Situation Index and the Expectations Index of business conditions for the next six months both posted solid increases. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—jumped to 24.7 from the 20.9 level posted in January.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 6.3% y/y gain in home prices in December, versus expectations of a 6.4% rise. M/M, home prices were up 0.6% on a seasonally adjusted basis for December, matching forecasts.

Treasuries were lower, as the yield on the 2-year note rose 3 basis points (bps) to 2.26%, the yield on the 10-year note gained 4 bps to 2.90%, and the 30-year bond rate ticked 1 bp higher to 3.17%.

Tomorrow’s economic calendar will yield the second look (of three) at Q4 GDP, expected to be revised slightly lower to a quarter-over-quarter annualized rate of 2.5% from the 2.6% posted in the first release, while personal consumption is also forecasted to decline modestly to 3.7% from 3.8%. Pending home sales are also slated for release, forecasted to show a 0.3% m/m increase for January, and the Chicago Purchasing Managers Index is also on tap, with economists expecting a reading of 65.0 for February, down from January’s 65.7. MBA Mortgage Applications will round out the docket.

Europe dips as U.S. monetary policy testimony eyed, Asia mixed

European equities nudged lower, with the global markets eyeing today’s monetary policy testimony from U.S. Fed Chief Jerome Powell, which appeared to foster a slightly more hawkish tone. The euro and British pound moved lower versus the U.S. dollar, while bond yields in the region were mostly higher. In economic news, German consumer price inflation came in a bit cooler than expected y/y for February, while Eurozone economic confidence for this month declined by a slightly smaller amount than anticipated.

Stocks in Asia finished mixed on the heels of the rally in the U.S. yesterday, while the markets appeared to tread with some caution ahead of today’s monetary policy testimony from U.S. Fed Chief Powell. Japanese equities rose, with the yen giving back some of yesterday’s gains, and stocks in Australia gained ground, aided by some strength in the banking sector.

Chinese stocks pared some of yesterday’s solid advances that came on some eased political uncertainty, while a ramping up earnings season seemed to foster some caution, with securities traded on the mainland and in Hong Kong both declined. Meanwhile, markets in India and South Korea dipped.

Tomorrow’s international economic calendar will be busy, offering business sentiment and industrial production from Japan, lending statistics from Australia, PMI reads from China, wage data, GDP, PPI and CPI from France, consumer sentiment from Germany, and CPI from Italy and the Eurozone.

Market Insights 2/26/2018

U.S. stocks began the week with a solid rally, shrugging off a surprising drop in new home sales ahead of the first semi-annual Congressional monetary policy testimony from the new Fed Chief, Jerome Powell.

Treasury yields were mostly lower, though the U.S. dollar was flat and crude oil prices and gold were all higher.

The Markets…

The Dow Jones Industrial Average surged 399 points (1.6%) to 25,709

The S&P 500 Index rallied 32 points (1.2%) to 2,780

The Nasdaq Composite ascended 84 points (1.1%) to 7,421

In moderate volume, 813 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.36 to $63.91 per barrel and wholesale gasoline added $0.02 to $2.00 per gallon

The Bloomberg gold spot price was $4.73 higher at $1,333.44 per ounce

The dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 89.86

New home sales surprisingly fall, regional manufacturing unexpectedly jumps

New home sales dropped 7.8% month-over-month in January to an annual rate of 593,000 units, versus the Bloomberg forecast calling for 647,000 units and the upwardly revised 643,000 unit pace in December. The median home price was up 2.5% y/y to $323,000. New home inventory rose to 6.1 months of supply at the current sales pace from 5.5 in December. Sales fell m/m in the South and tumbled in the Northeast, while rising solidly in the Midwest and nudging higher in the West. New home sales are based on contract signings instead of closings, and were likely bogged down by the recent rally in interest rates, which is adding to the pressure on affordability along with the steady appreciation in home prices. The rough winter weather in the east likely also weighed on home buying activity.

The Dallas Fed Manufacturing Activity Index rose to 37.2 in February—the highest since December 2005—from 33.4 in January, and versus forecasts of a decline to 30.0. A reading above zero denotes expansion.

Treasuries traded mostly higher, with the yields on the 2-year and 10-year notes declining 1 basis point (bp) to 2.23% and 2.86%, respectively, and the 30-year bond rate was nearly unchanged at 3.16%.

Tomorrow, the U.S. economic calendar will continue to garner attention with releases expected to include the advance goods trade balance, anticipated to remain at a lower revised $72.3 billion shortfall in January, joined by the preliminary durable goods orders report, projected to show a 2.0% decline m/m in January, while excluding transportation, orders are thought to have increased by 0.4% m/m. The S&P CoreLogic Case-Shiller Home Price Index is also expected before tomorrow’s opening bell and is predicted to show prices in the 20-city composite rose 0.6% m/m on a seasonally-adjusted basis during December and 6.4% y/y.

After morning trade commences, we’ll receive a read on Consumer Confidence, with economists expecting a slight increase to a level of 126.5 for February from the 125.4 registered in January. Rounding out the day’s economic reports will be the Richmond Fed Manufacturing Activity Index for February, forecasted to have moved slightly further into expansion territory to a level of 15 from the previous month’s 14, with 0 representing the line of demarcation between expansion and contraction in activity levels. However, the headlining event will likely be the beginning of Fed Chairman Jerome Powell’s first semi-annual Congressional monetary policy testimony.

Both Europe and Asia higher to begin the week

European equities traded mostly higher, with U.S. stocks extending Friday’s rally, while the markets awaited tomorrow’s monetary policy testimony from new Fed Chief Jerome Powell. The markets also paid some attention to an upcoming Italian election this week, while the euro ticked higher and British pound turned lower versus the U.S. dollar.

The economic calendar was relatively light, while bond yields in the region finished mostly lower. Most major sectors moved higher, except the real estate sector.

Stocks in Asia finished higher to kick-off the week, following the solid gains in the U.S. on Friday, while the markets await the monetary policy testimony from the new U.S. Fed Chief later this week. Japanese equities rose, even as the yen gained some ground late in the session.

Stocks trading in mainland China and Hong Kong advanced despite data showing January home price increases decelerated, while the markets appeared to find some support from a proposal to end a constitutional clause limiting presidential service terms. Australian securities rose, South Korean shares were higher, and Indian equities traded to the upside.

Random Thoughts

If investors could sum up in a single word the biggest change in this year’s equity market performance over last year’s, it would likely be “Volatility.”

On the surface, they would be correct, since the S&P 500 has endured an average daily intra-day volatility of 1.32%, versus an average of only 0.51% during 2017.

Yet as volatile as this year’s action might feel, it has actually been calmer than the average of 1.43% experienced for all years since 1962.

Indeed, the average thus far in 2018 ranks it only 32nd in the past 57 years, with 2008 suffering the most with an average intra-day swing of 2.8%. Not surprisingly, the remaining top 10 years also occurred during bear markets.

Those investors looking to reduce volatility rather than their exposure to equities might consider low volatility subsets of broad benchmarks.

A 100% global equity portfolio, consisting of 70% U.S. large-, mid-, and small-cap benchmarks, plus 30% developed international and emerging market indices, delivered an 8.6% compound annual growth rate (CAGR) over the past 20+ years.

However, a “Low Volatility Portfolio,” which maintained the percentage exposure to these global equity markets but substituted each broad benchmark with a low volatility subset, earned nearly 200 basis points more per year, while reducing the annual volatility by more than 30% and improving the positive annual positive return batting average to 80% from 70%.

Market insights 2/23/2018

U.S. stocks rallied, holding solid gains throughout Friday’s trading session as the major domestic indexes erased declines for the holiday-shortened week.

Treasury yields continued yesterday’s retreat, the U.S. dollar rebounded slightly, gold dipped and crude oil prices advanced.

The Markets….

The Dow Jones Industrial Average (DJIA) advanced 348 points (1.4%) to 25,310

the S&P 500 Index rallied 43 points (1.6%) to 2,747

the Nasdaq Composite jumped 127 points (1.8%) to 7,337

In moderate volume, 726 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.78 to $63.55 per barrel and wholesale gasoline added $0.03 to $1.98 per gallon

the Bloomberg gold spot price was $2.86 lower at $1,329.19 per ounce

the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% higher at 89.87

Markets were higher for the week, as the DJIA gained 0.4%, the S&P 500 Index ticked 0.6% higher and the Nasdaq Composite advanced 1.4%

Bond yields extend yesterday’s retreat, U.S. dollar remains choppy, Fed report digested

The Federal Reserve released its 2018 monetary policy report to Congress, the first with newly-minted Chairman Jerome Powell before he heads to Capitol Hill next week. The text reiterated an upbeat economic tone and that inflation is expected to move toward its target.

Bond yields extended yesterday’s retreat from a recent run, while the U.S. dollar rose following yesterday’s decline. As bond yields have rallied, the dollar has seen fits and starts but remained on the downtrend.

Treasuries traded higher, with the yield on the 2-year note declining 1 basis point to 2.24% and the yields on the 10-year note and the 30-year bond dropping 5 bps to 2.87% and 3.16%, respectively

Europe mixed on data, Asia finished out the week positively

European equities finished mixed, with the markets digesting a diverging dose of earnings and economic data in the region, while treading with some caution amid the release of the monetary policy report in the U.S. In economic news, German GDP growth matched estimates, along with eurozone consumer price inflation figures for January. The euro declined versus the U.S. dollar, while the British pound ticked higher. Bond yields in the region finished mostly lower.

Stocks in Asia finished mostly higher despite the choppiness in the U.S. markets, with South Korean equities leading the way as technology issues outperformed. Japanese stocks rose despite the recent strength in the yen, with the nation reporting some slightly hotter-than-expected January consumer price inflation statistics.

Mainland Chinese shares gained ground, adding to yesterday’s rally after returning to action following the long Lunar New Year holiday break, while stocks in Hong Kong rebounded from yesterday’s drop. Material issues led Australian securities higher, while India equities capped off the week with solid gains.

Stocks mixed after prior week’s surge

U.S. stocks followed last week’s move higher with choppy mixed action this week as several sessions saw early gains fade late in the day. The continued run in Treasury yields remained in focus and boosted by the release of the minutes from the Fed’s January monetary policy meeting showing an improving economic outlook.

The yield on the 10-year note jumped following the report, almost hitting the 3.0% mark for the first time since late-2013 and the U.S. dollar recovered from last week’s drop to multi-year lows. The economic calendar was mostly positive, with the Fed’s minutes being accompanied by Markit’s business activity reports showing growth accelerated this month and Leading Indicators continued to grind higher, overshadowing an unexpected decline in existing home sales.

A mostly positive earnings season continued to wind down, highlighted by Dow member Home Depot Inc’s stronger-than-expected results, but headlined by Dow component Walmart Inc’s (WMT $93) tumble after posting earnings and issuing guidance that missed forecasts. 453 S&P 500 companies have reported results thus far and the sales beat rate is near 77% and the earnings positive surprise rate is about 79%, per data compiled by Bloomberg. Crude oil prices rallied for a second-straight week, bolstered by some bullish inventory data.

Amid the heightened focus on the run in bond yields, next week’s economic calendar will likely continue to garner added attention. Key reports due out include: preliminary January durable goods orders, February Consumer Confidence, the second look (of three) at Q4 GDP, January personal income and spending, the February ISM Manufacturing Index, February auto sales, and the final February University of Michigan Consumer Sentiment Index. However, the headlining event will likely be Fed Chairman Jerome Powell’s first semi-annual Congressional monetary policy testimony.

U.S. Market Weekly Summary – Week Ending 02/23/2018

The Standard & Poor’s 500 index edged up 0.6% this week as a Friday gain led by the technology sector helped lift the measure into the black despite declines of more than 2% each in the telecommunications and consumer-staples sectors.

The market benchmark ended the week at 2,747.30, up from last week’s closing level of 2,732.22. There were just four sessions this week as the market was closed Monday for Presidents Day.

As of Thursday’s close, the S&P 500 had been down 1.0% from where it closed last Friday, with every sector in the red versus last Friday. However, the S&P 500 climbed 1.6% Friday as seven of the index’s 11 sectors moved into the black versus last week’s close; this lifted the measure into positive territory for the week.

The technology sector had the biggest percentage gain this week, up 1.9%, followed by a 1.2% rise in materials stocks. On the downside, the telecommunications sector had the largest percentage drop of the week, down 2.4%, followed by a 2.2% slide in consumer staples.

Much of the technology sector’s Friday gains were in reaction to better-than-expected quarterly results released late Thursday. Among them, Hewlett Packard Enterprise shares rose 11% Friday and ended the week up 11% versus last Friday. The technology company reported fiscal Q1 results above analysts’ expectations late Thursday and issued earnings guidance above the Street view for fiscal Q2 while boosting its outlook for fiscal 2018 earnings.

Market Insights 2/22/2018

U.S. stocks pared an early rally, closing mixed as volatility persisted throughout the final hour of the trading session.

Treasury yields dipped after a recent run that was boosted by yesterday’s release of the minutes from the Fed’s last monetary policy meeting.

Gold and crude oil prices advanced and the U.S. dollar snapped a recent string of gains.

The Markets….

The Dow Jones Industrial Average advanced 165 points (0.7%) to 24,962

The S&P 500 Index increased 3 points (0.1%) to 2,704

The Nasdaq Composite shed 8 points (0.1%) to 7,210

In moderate volume, 835 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.98 to $62.66 per barrel and wholesale gasoline added $0.02 to $1.95 per gallon

The Bloomberg gold spot price was $6.56 higher at $1,331.19 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.3% lower at 89.77

Jobless claims decline, Leading Indicators jump

Weekly initial jobless claims decreased by 7,000 to 222,000, versus the Bloomberg expectation calling for 230,000, with the prior week’s figure being revised lower by 1,000 to 229,000. The four-week moving average declined by 2,250 to 226,000, while continuing claims fell by 73,000 to 1,875,000, well south of estimates of 1,935,000.

The Conference Board’s Index of Leading Economic Indicators (LEI) for January rose 1.0% month-over-month, above projections of a 0.7% gain, and versus December’s unrevised 0.6% rise. The index has not seen a decline since May 2016. Most of the ten components of the index improved, led by solid gains for building permits, ISM new orders and stock prices.

The Kansas City Fed Manufacturing Activity Index for February ticked higher to 17 from 16 in January, compared to an expected rise to 18. A reading above zero denotes expansion.

Treasuries traded higher, with the yields on the 2-year note and the 30-year bond dipping 2 basis points (bps) to 2.25% and 3.21%, respectively, and the yield on the 10-year note declining 3 bps to 2.92%.

Yesterday, bond yields extended a recent run and the U.S. dollar tacked onto a weekly rebound in the wake of the minutes from the Fed’s January monetary policy meeting that showed the Central Bank grew more positive on its economic outlook, while also increasingly confident that it can achieve its inflation target.

Europe and Asia mixed following data and Fed meeting details

European equities finished mixed, with the global markets assessing yesterday’s afternoon slide in the U.S. that came courtesy of the minutes from the Fed’s January monetary policy meeting and the extended rally in bond yields. Also, German business sentiment declined more than expected for this month, while U.K. Q4 GDP growth came in at a 1.4% y/y pace, missing the expected 1.5% expansion and the 1.8% increase posted in Q3.

The euro and British pound finished higher versus the U.S. dollar, while bond yields in the region were mixed. However, the markets came off the worst levels of the day as the U.S. markets recovered.

Stocks in Asia finished mixed, with mainland Chinese equities rallying in a return to action following a week long Lunar New Year holiday break, while the markets digested the minutes from the Fed’s January monetary policy meeting and the extended run in U.S. Treasury yields. Japanese equities fell, with the yen gaining ground late in the session, while mainland Chinese stocks jumped. Shares trading in Hong Kong finished to the downside, South Korean equities declined and Indian listings dipped. Australian securities ticked higher.

Market Insights 2/21/2018

After spending most of the session in positive territory, and despite a significant boost following the afternoon release of the Fed minutes that showed confidence in improving growth, U.S. equities tumbled below the flatline to finish lower.

Treasury yields and the U.S. dollar extended gains, while crude oil prices were mixed and gold was lower.

The Markets…

The Dow Jones Industrial Average declined 167 points (0.7%) to 24,798

The S&P 500 Index fell 15 points (0.6%) to 2,701

The Nasdaq Composite lost 16 points (0.2%) to 7,218

In moderate volume, 889 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.11 lower to $61.68 per barrel and wholesale gasoline added $0.01 to $1.93 per gallon

The Bloomberg gold spot price decreased $4.75 to $1,324.44 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 90.03

Existing homes sales decline, business activity accelerates, Fed report notes confidence

Existing-home sales in January declined 3.2% month-over-month to a 5.38 million annual rate, compared to the Bloomberg forecast of a 5.60 million pace, and versus December’s revised 5.56 million rate. Sales of single-family homes declined 3.8% m/m and purchases of multi-family structures rose 1.6%, with both down y/y. The median existing-home price was 5.8% above year ago levels at $240,500. Unsold inventory came in at a 3.4-months pace at the current sales rate, up from last month’s record low. Inventory of homes for sale rose m/m but was down 9.5% y/y. Sales were lower m/m in all regions. Existing home sales account for the majority of the housing sales market.

The National Association of Realtors (NAR) said the utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month, though buyer traffic was stronger than the beginning of last year. NAR added that it’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth. Since existing home sales are based on contract closings instead of signings, pressure on affordability may be set to intensify due to the recent run in interest rates that are likely not reflected in the January report.

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output surprisingly accelerated, rising to 55.9 in February, versus expectations to remain at January’s 55.5 figure. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector increased more than expected this month to 55.9 from January’s 53.3 figure, and versus forecasts calling for it to rise to 53.7. Readings above 50 for both indexes denote expansion.

The MBA Mortgage Application Index fell 6.6% last week, following the prior week’s 4.1% decrease. The decline came as a 7.1% drop in the Refinance Index was met with a 6.2% fall for the Purchase Index. The average 30-year mortgage rate gained 7 basis points (bps) to 4.64%.

The minutes from the Federal Reserve’s January monetary policy meeting, in which it kept its stance unchanged, showed the Committee grew more positive on its economic outlook, while also increasingly confident that it can achieve its inflation target. The Committee said that it “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further,” adding that a number of members “indicated that they had marked up their forecasts for economic growth in the near term relative to those made for the December meeting.” As such, “a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.”

Treasuries finished lower, as the yield on the 2-year note rose 2 bps to 2.27%, the yield on the 10-year note gained 4 bps to 2.94%, and the 30-year bond rate jumped 7 bps to 3.22%

Tomorrow’s economic calendar will offer weekly initial jobless claims, which are forecasted to remain at the previous week’s level of 230,000, as well as the Index of Leading Economic Indicators (LEI), with economists anticipating a 0.7% m/m increase for January, followed by the Kansas City Fed Manufacturing Index, expected to move further into expansion territory (a reading above zero) to 18 during February from the 16 posted the month prior.

Europe mixed on earnings and economic data, Asia higher

European equities finished mixed, with the U.S. markets rebounding from late-yesterday’s slide, while some mixed earnings and economic data was sifted through. Markit’s Eurozone Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—declined to 57.5 for February, from 58.8 in January, and compared to the projected decrease to 58.4. However, a reading above 50 denotes expansion.

The euro and British pound traded lower as the U.S. dollar extends a rebound, while the markets awaited today’s release of the Fed meeting minutes. Bond yields in the region finished lower.

The U.K. FTSE 100 Index was up 0.5%, France’s CAC-40 Index rose 0.2% and Switzerland’s Swiss Market Index ticked 0.1% higher, while Germany’s DAX Index and Italy’s FTSE MIB Index dipped 0.1%, and Spain’s IBEX 35 Index fell 0.7%.

Stocks in Asia finished mostly higher, shrugging off late-yesterday’s decline in the U.S., with the yen extending its weakness versus the U.S. dollar to boost Japanese equities and counter weakness in retail and financial issues.

Stocks in Hong Kong jumped, rebounding from yesterday’s decline, and listings in South Korea, India and Australia gained ground. Markets in China remained closed for the Lunar New Year holiday.

Random Thoughts

Stock prices appear to be buoyed by upward adjustments to economic growth and EPS estimates, despite an increase in inflationary expectations and interest rate assumptions.

Action Economics (AE) recently made upward revisions to its year-over-year Q4 Core CPI growth rate to 2.0% from the 1.9% estimated earlier.

In addition, expectations now call for the yield on the 10-year note to average 3.00% by the final quarter of the year, versus AE’s previous 2.85% year-end forecast and 2.45% level seen at the end of 2017.

While the Fed is still likely to raise rates three times this year, AE’s Q4 projection for the FRB U.S. dollar index is a further erosion toward the 85.5 average by the end of the year versus the 88.9 terminal reading at the end of 2017.

However, the greatest revision came from earning consensus estimate for the S&P 500’s 2018 EPS: $156 currently from $145 at the end of last year.