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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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The major US equity indexes ended higher for the week, with the S&P 500 Index and Nasdaq rounding out on Thursday their best monthly gains (8.9% and 10.7%, respectively) since July 2020. Falling Treasury yields seemed to continue to boost sentiment, and a broad index of the bond market recorded its best monthly gain since 1985. On the macro side, inflation continues to cool down. In the US, the core personal consumption expenditures (PCE) price index rose 0.2% in October, a slowdown from September. The yoy increase is down to 3.5% — the lowest level since April 2021.