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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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Most of US equities indices rose to record highs, as investors wagered that a “red sweep” (Republicans winning Presidency, Senate and Congress) would result in faster earnings growth, looser regulations, and lower corporate taxes. The small-cap Russell 2000 Index surged 8.57% for the week but was the sole benchmark to remain out of record territory. Meanwhile, the Dow Jones hit 44.000 for the first time while the S&P 500 closed just shy of 6,000, up 4.7% for the week, its best weekly gain in almost a year. On Thursday, the Fed announced a 25bps rate cut, its first easing move since cutting rates by 50 basis points in mid-September. In terms of economic data, the October ISM services sector activity came in at 56.0, well above expectations and the best reading since August 2022. U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.