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DJI closes higher, S&P , Nasdaq decline
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Energy weakest S&P 500 sector; consumer staples lead
gainers
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Dollar slips; gold up slightly; crude down ~2%; bitcoin up
>5%
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U.S. 10-Year Treasury yield edges down to ~3.82%
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DOW GAINS, BUT FALLS FOR THIRD-STRAIGHT WEEK (1605 EST/2105
GMT)
Major U.S. indexes closed out
Friday's session mixed
ahead of the long holiday weekend, as investors grew more
concerned about the possibility the Federal Reserve may have to
raise interest rates more than the market had priced in.
In the wake of inflation data this week, analysts on Wall Street have
begun to increase
their expectations for the path of Fed rate hikes, with
Goldman Sachs and Bank of America now forecasting three hikes
this year.
On Friday,
two more Fed officials
echoed comments from colleagues by indicating interest
rates will need to go higher in order to successfully stamp out
inflation.
While the Dow managed to close higher on Friday,
the index was down for a third-straight week as the tone
remained defensive, with consumer staples and
utilities the top performing S&P sectors on the day.
For the week, the Dow shed 0.13%, the S&P 500 lost about 0.3%, while the Nasdaq advanced about 0.6%.
Below is your closing market snapshot:
(Chuck Mikolajczak)
*****
INDIVIDUAL INVESTORS LEAN NEUTRAL -AAII (1330 EST/1830 GMT)
Neutral sentiment slipped, but still extended its streak of above-average readings in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, bullish sentiment also dipped, while bearish sentiment increased.
AAII reported that neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, edged down 0.4 percentage points to 37.1%. Neutral sentiment is above its historical average of 31.5% for the seventh consecutive week. This is the longest streak of above-average neutral sentiment since a seven-week run in December 2021 and January 2022. Bullish sentiment, or expectations that stock prices will rise over the next six months, declined by 3.4 percentage points to 34.1%. Optimism is back below its historical average of 37.5% after being at the average last week for the first time in 58 weeks. Bearish sentiment, or expectations that stock prices will fall over the next six months, regained 3.8 percentage points to 28.8%. Pessimism is below its historical average of 31.0% for just the fifth time out of the past 65 weeks. Bearish sentiment is also below average on consecutive weeks for the first time since a five-week stretch in October-November 2021. With these changes, the bull-bear spread narrowed to +5.3 percentage points from +12.5 percentage points last week. Optimism has now exceeded pessimism for a second week in a row for the first time since November 2021: AAII noted that "this year’s rally in stock prices along with less aggressive monetary policy "are likely contributing to the improved level of optimism. Nonetheless, concerns about the economy, inflation and corporate earnings remain."
(Terence Gabriel)
*****
THE ULTIMATE VALUE PLAY? EUROPE STILL KING (1153
EST/1653 GMT)
At a time when the U.S. Federal Reserve doesn't seem to
be backing off from its interest rate-hiking spree, market
players are now looking across the Atlantic for some real value
investments.
European equities have been the long-standing king of
the value trade for a while now, given their underperformance
relative to U.S. counterparts.
Even more so now, after how badly beaten up they got on
their exposure to the Russia-Ukraine crisis, China's draconian
COVID-19 rules, and tough weather conditions.
But those very reasons have now turned into somewhat of
a tailwind for these continental stocks, as each of these
factors have dealt a much less-than-feared blow this year.
"As Chinese people resume their pre-pandemic habits and
consumer demand there rebounds, we think European luxury goods,
travel and other consumer discretionary companies will be key
beneficiaries," said Emily Leveille, portfolio manager at
Thornburg Investment Management.
Leveille also notes that the recent turnaround in energy
prices will support economies that are the biggest importers of
natural gas, which not only includes European countries, but
also Japan, South Korea, and China.
(Shreyashi Sanyal)
*****
FRIDAY DATA FORECASTS COOLING ECONOMIC WEATHER (1102
EST/1602 GMT)
Investors headed into the long holiday weekend with two
relatively minor bits of data, but together these economic
supporting players amount to good news for Fed watchers.
The prices for goods and services imported to the United
States dropped by 0.2% in January, as expected, but
from a downwardly revised December print of -0.1% (previously
stated as a 0.4% gain).
This marks the metric's seventh consecutive monthly decline.
By line item, a 4.5% monthly drop in gasoline and a 2%
decline in industrial supplies offset a 1.3% jump in food prices
and a 0.6% rise in the cost of imported vehicles/parts.
"However encouraging, (the report) will likely factor little
into the Fed's decision to raise rates at the March meeting, and
potentially the May meeting as well, as it continues to wrangle
with stubborn inflation," writes Matthew Martin, U.S. economist
at Oxford Economics.
"Slowing demand domestically and abroad, alongside a weaker dollar, will keep downside pressures on import prices," Martin adds. Year-over-year, import prices are up a mere 0.8%, nabbing the honor of being the first major indicator to have touched - and actually dipped below - Powell & Co's average annual 2% inflation target.
While this week's CPI and PPI reports came in warmer than
most market participants would have preferred, import prices
joins those - along with hourly wages - in showing yearly price
growth slowing down.
One week from today, the PCE price index will complete the
picture. Economists polled by Reuters expect year-over-year core
PCE to inch down 10 basis points to 4.3%, still more than double
the magic number.
A separate report from the Conference Board (CB) hinted at
economic softening, the desired result of the Fed's barrage of
policy rate hikes.
CB's leading index , an amalgamation of ten data
points - including jobless claims, ISM new orders, building
permits, Treasury yield spreads, the S&P 500, among others -
dropped by 0.3% in the opening weeks of 2023, extending
December's 0.8% slide and sticking on the consensus landing.
It marks the index's ninth straight month in negative
territory.
"Among the leading indicators, deteriorating manufacturing
new orders, consumers’ expectations of business conditions, and
credit conditions more than offset strengths in labor markets
and stock prices to drive the index lower," says Ataman
Ozyildirim, CB's senior director of economics. "The contribution
of the yield spread component of the LEI also turned negative in
the last two months, which is often a signal of recession to
come."
Here's a look at the index compared with CB's own near-term
consumer expectations:
Wall Street is lower in mid-morning trade. However, the Dow , which briefly turned positive, is now off just slightly.
Tech and chips are down more than most, but
energy , weighed down by sliding crude prices , is
suffering the session's biggest percentage loss among S&P 500 sectors.
(Stephen Culp)
*****
BOFA TACKS ON 25 BASIS POINT HIKE FOR JUNE FOMC MEETING
(1004 EST/1504 GMT)
After a couple of weeks full of data that included readings
on consumer and producer inflation along with some labor market
reports, economists at Bank of America Global Research have
added a 25 basis point (bps) hike in June to its forecast for
Federal Reserve rate hikes.
In a note to clients, BofA chief U.S. economist Michael Gapen said that while they see some of the strength in the labor market data as attributable to some seasonal adjustments and other data distortions, "it is hard to ignore revisions to employment growth in 2022 that leave labor market momentum in a more favorable position then before." Regarding the inflation data, BofA notes the details of the consumer price index (CPI) report earlier this week were "discouraging" while the producer price index (PPI) report on Thursday suggested personal consumption expenditures will "also be solid in January."
After initially forecasting 25 basis point hikes in March and May, followed by a pause from the Fed, BofA said "resurgent inflation and solid employment gains mean the risks to this outlook are too one-sided for our liking." As such, hikes in March and May appear very likely and the firm believes the central bank might have to hike further if inflation, job growth and consumer demand do not soften.
In adding the 25 basis point hike for June, the terminal
rate would go up to 5.25%-5.50%, but BofA is still forecasting a
first rate cut by the Fed in March 2024.
(Chuck Mikolajczak)
*****
U.S. 10-YEAR TREASURY YIELD HITS A MORE THAN 3-MONTH HIGH (0900 EST/1400 GMT) The U.S. 10-Year Treasury yield has hit its highest level since early-November. With this, U.S. equity index futures are lower on fears that accelerating inflation in the face of a sturdy U.S. economy could prompt the Federal Reserve to err on the side of caution by keeping monetary policy restrictive through the year. The yield hit a high of 3.9290%, and is on track to rise for a fourth-straight week: That said, it has since backed away to around 3.89%. There is yield resistance in the 3.9050%-3.98% zone which includes the late-December 2022 high, a weekly Gann Line (now around 3.94%), and the 23.6% Fibonacci retracement of the 1981-2020 yield bear market at 3.9765%.
This zone has the potential to cap this latest yield rise. In that event, the yield could once again chop its way back down to the 3.50%-3.30% area as a number of weekly Gann Lines are providing yield support in this zone. The yield's mid-January trough was at 3.3210%. A thrust above 3.98%, confirmed by the weekly close, however, can put traders on guard for the yield to challenge the 4.25%-4.3380% area. This zone includes another weekly Gann Line as well as the October 2022 high. The 4.3380% mark was the highest level since November 2007. The 4.3380% level protects against the potential for a further rise to the 5% area. Coming under 3.3210% would instead potentially refocus on the 2.5160% early-August 2022 trough.
(Terence Gabriel)
*****
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
