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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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Major US stock indexes finished the holiday-shortened week mixed. Smaller-cap indexes outperformed, with the Russell 2000 Index posting gains, while the Dow Jones, S&P 500 and Nasdaq Composite indexes all closed the week lower. The Tech sector was a notable decliner during the week, due in part to news that the U.S. government would add new restrictions on exports of chips to China in a further escalation of the ongoing trade war between the world’s two largest economies. Hawkish comments from Fed Chair Jerome Powell appeared to add to the negative sentiment in the latter half of the week. On the macro side, US consumer spending rose 1.4% yoy in March, the highest monthly increase in over two years, as consumers rushed to buy cars ahead of the Trump administration’s 25% tariff on automobiles.