Friday, 16 February 2018

After the Dow and the S&P 500 were pushed into correction territory last week, U.S. stocks reversed sharply this week – on track for their best weekly performance since the presidential election.

However, the market has not quite made up half of the decline.  Much of the pick up this week is due to strong corporate earnings and signs that the economy does not appear to be overheating.

Nearly all of the S&P 500 sectors reported gains on Thursday. The only sector in the red was energy, which was impacted by negative supply data in crude oil prices. Large technology companies are once again the major winners with Cisco Systems being the major gainer. The U.S. dollar continued to decline despite strong economic data and rising bond yields. 

Bonds decline slightly

U.S. government bond yields declined slightly on Thursday after Wednesday’s selloff. On Wednesday, the benchmark 10-year Treasury note closed at its highest level, 2.91%, since the start of 2014 amid an increase in producer prices. On a weekly basis, however, Treasury yields remain relatively flat.

Inflation rises more than expected 

Inflation ticked up slightly in January, but more importantly it came in higher than expectations.  The consumer price index rose 0.5 percent - the biggest increase in five months – amid rising costs in rent, gas, and healthcare prices. Core CPI, which excludes gas and food prices, rose approximately 0.3 percent. Of note, the rise in inflation increased investors’ expectations of interest rate hikes in 2018 to four from three.

Wholesale prices also ticked up, as measured by the Producer Price Index (PPI), on increased costs caused by higher crude prices in January. Retail sales declined in January amid lower auto and home center sales. When auto sales were excluded, retail sales remained flat.  The U.S. trade deficit for 2017 rose to the highest level since 2008. The large deficit in the fourth quarter prevented the U.S. from reaching 3 percent GDP growth. Despite imports reaching their highest levels on record, exports in 2017 increased to their second-highest level ever. 

The  Weekly Market Update is prepared by our Global Wealth Investments team to help explain changes in major market indices during the previous week and provide context for economic data.

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Read the full Feb. 15 report with accompanying charts and graphs. 

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