WEEKLY SUMMARY: US stocks regain lost ground while US 10Y hit 4%
Main US equity benchmarks closed the week higher and regained some ground following their worst weekly decline in two months. Energy and materials shares outperformed. Economic reports were mixed. US durable goods orders posted their steepest decline since April 2020. The ISM Manufacturing PMI ticked higher in February for the 1st time since May (although it remained in contraction territory at 47.7) while services PMI fell slightly but less than consensus expectations and still indicated moderate expansion (55.1). The week’s biggest data surprise was an 8.1% jump in pending home sales in January, marking the second month of gains. Hawkish Fed members' comments triggered a spike in US bond yields during the 1st part of the week as some Fed members opened the door to a 50 bps rate hike in March. But Atlanta Fed President Bostic appeared to help spark a modest rally on Thursday afternoon as he stated that he still supported only a quarter-point rate hike. The US 10-year pulled back from an intra-week high of 4.09% to end the week only slightly higher while credit spreads continued to compress. Shares in Europe rose as markets focused on signs of an improving economic outlook while ECB’s Lagarde signaled a 50 bps rate hike in March. Chinese stocks rose for the 2nd week as strong economic data raised prospects for a better-than-expected recovery. The dollar dropped by 1% while Bitcoin broke down its 50-day moving average.
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Stocks were volatile this week with continued rotation in market leadership to small-cap and value shares. U.S. markets initially rallied to new-highs but faded toward week's end, led by weakness in the tech sector. The S&P 500 and Nasdaq closed lower on the week, while the Dow posted a solid gain. Value stocks outpaced growth stocks by 477 basis, as measured by Russell indexes—the largest divergence since March 2023. The week was also notable for a widespread global disruption to computer systems early Friday due to an error in a vendor’s security update to some users of the Microsoft operating system.