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February 16, 2018

Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

Stock market volatility decreased and the major market averages gained. The economic data calendar was full and most of the figures were weaker than anticipated or showed upside surprises on inflation, but the stock market ignored the data (a strong sign). Note that economic figures are subject to weather and seasonal distortions at the start of the year. 

Retail sales fell short of expectations in January, with downward revisions to the figures for November and December. Industrial production numbers were soft, but that followed a relatively strong fourth quarter (which was a rebound from an unexpectedly weak 3Q17). The Consumer Price Index (CPI) rose more than anticipated in January. The core CPI also surprised to the upside, although January figures can be quirky and the year-over-year pace of inflation (overall and core) was exactly the same as in December. 

Next week, the economic calendar is thin. Investors will look to the minutes of the January 30 – 31 monetary policy meeting to gauge the likely path of short-term interest rates (higher, yes, but how fast?). Fed Chair Powell should present a more complete picture when he delivers his semi-annual monetary policy testimony to Congress on February 28.


Indices

  Last Last Week YTD return %
DJIA 25200.37 23860.46 1.95%
NASDAQ 7256.43 6777.16 5.11%
S&P 500 2731.20 2581.00 2.15%
MSCI EAFE 2058.66 2022.67 0.38%
Russell 2000 1537.20 1463.79 0.11%

Consumer Money Rates

  Last 1 year ago
Prime Rate 4.50 3.75
Fed Funds 1.41 0.66
30-year mortgage 4.57 4.20

Currencies

  Last 1 year ago
Dollars per British Pound 1.412 1.249
Dollars per Euro 1.253 1.060
Japanese Yen per Dollar 106.17 113.24
Canadian Dollars per Dollar 1.248 1.307
Mexican Peso per Dollar 18.518 20.380

Commodities

  Last 1 year ago
Crude Oil 61.78 53.11
Gold 1358.90 1233.10

Bond Rates

  Last 1 month ago
2-year treasury 2.19 2.04
10-year treasury 2.90 2.63
10-year municipal (TEY) 3.83 3.29

Treasury Yield Curve – 02/16/2018

Chart

As of close of business 02/15/2018


S&P Sector Performance (YTD) – 02/16/2018


Chart

As of close of business 02/15/2018


Economic Calendar

February 19  —  Presidents Day (markets closed)
February 21  —  Existing Home Sales (January)
 —  FOMC minutes (January 31)
February 22  —  Jobless Claims (week ending February 17)
February 26  —  New Home Sales (January)
February 27  —  Durable Goods Orders (January)
 —  CB Consumer Confidence (February)
February 28  —  Real GDP (4Q17, 2nd estimate)
 —  Powell Monetary Policy Testimony
March 1  —  ISM Manufacturing Index (February)
 —  Powell Monetary Policy Testimony (Senate)
March 9  —  Employment Report (February)
March 21  —  FOMC Policy Decision (Powell press conference)
May 2  —  FOMC Policy Decision (no press conference)
June 13  —  FOMC Policy Decision (Powell press conference)

 

All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business Februrary 15, 2018.

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