Year: 2018

Equities opened the week sharply higher on Monday as interest rates climbed. Most major indexes gained 1 percent on the day. The 10- and 30-year Treasury yields rallied during the day, erasing last week’s losses.

Financials benefited from rising rates and led sector performance on Monday. Banking stocks approached 52-week highs. Shares of Netflix (NFLX) hit a new 52-week high, pulling SPDR Consumer Discretionary (XLP) higher on the day. Utilities and real estate were also strongest sectors on the day, although those gains appear to be a corrective move within a larger downturn. iShares U.S. Home Construction (IT) also shrugged off rising rates, gaining more than 1 percent on the day.

Biotechnology stocks saw solid gains on the day, while Internet funds pushed to new 52-week highs.

The ISM services PMI hit 59.5 in February, beating expectations of 58.9. Releases set for later this week include January factory orders (forecast to fall 1.4 percent), trade deficit ($55.1 billion) and consumer credit. Weekly jobless claims are expected to remain near four-decade lows. Friday will bring the February employment report. The consensus calls for 210,000 new jobs and unemployment falling to 4.0 percent, with average hourly earnings rising 0.2 percent.

Overseas, the Royal Bank of Canada will meet on Wednesday and is expected to hold rates steady. The Bank of Japan and European Central Bank are also expected to leave monetary policies unchanged this week. Chinese inflation data is scheduled for Friday.

Italian stocks fell on Monday as investors weighed the risk of a 5-Star and League coalition following Sunday’s election, but currency traders held back. The euro was flat and traded in a narrow range on Monday.

The yen weakened slightly on Monday and lifted the U.S. Dollar Index. Crude oil rallied past $62 a barrel, making up ground it lost to larger-than-expected inventory builds. Grains have rallied strongly in recent trading sessions. PowerShares DB Agriculture (DBA) hit a 7-month high on Monday. Soybeans are near their 52-week high, while wheat and corn are trading at their highest levels since July.

Retail earnings season is in full swing this week with Target (TGT) headlining on Tuesday. Analysts are looking for $1.39 per share, down from $1.45 in the year-ago quarter. Costco (COST) is expected to grow earnings to $1.45 per share, up from $1.17 last year.  Ross Stores (ROST), Urban Outfitters (URBN), Dollar Tree (DLTR), Abercrombie & Fitch (ANF), Children’s Place (PLCE) and Big Lots (BIG) are among the other retailers reporting this week.

Non-retail companies reporting this week include H&R Block (HRB), Autodesk (ADSK), Revlon (REV), Ciena (CIEN), and AeroVironment (AVAV).

Telecom, consumer staples and technology led sector performance. iShares US Telecommunications (IYZ) declined 0.81 percent, SPDR Technology (XLK) 0.83 percent and SPDR Consumer Staples (XLP) 1.16 percent. iShares PHLX Semiconductors (SOXX) gained 1.05 percent on the week.

Economic data was strong this week. New home sales fell to an annualized pace of 593,000, within the uptrend in place since 2011. Fourth-quarter GDP growth was revised to 2.5 percent, in line with expectations. Personal income grew 0.4 percent in January. The ISM Manufacturing PMI jumped to 60.8 in February as the sector strengthened. January construction spending was strong. The Conference Board’s consumer confidence index rose to 130.8, beating expectations, while the University of Michigan’s consumer sentiment survey was down slightly to 99.7.  Consumer and construction data lifted the Atlanta Federal Reserve’s GDP Now forecast from 2.6 percent to 3.5 percent.

While rate hike expectations increased, long-term bond yields remained in a downtrend since making a new high on February 21st. The 10-year Treasury yield fell to 2.86 percent, while the 30-year Treasury yield declined to 3.13 percent. iShares Barclays 20+ Year Treasury (TLT) rose 0.38 percent. Although interest rates declined, SPDR Utilities (XLU) fell 2.76 percent.

The U.S. Dollar Index was up as much as 1 percent midweek before falling on Thursday after President Trump announced tariffs on steel and aluminum. It finished the week with a small increase of 0.06 percent.  The S&P 500 Index extended its outperformance versus foreign markets. SPDR S&P 500 (SPY) fell 2.01 percent, iShares MSCI EAFE (EFA) slid 2.69 percent and iShares MSCI Emerging Markets (EEM) slumped 3.24 percent.

Crude oil declined 3.2 percent for the week after gasoline inventories rose more than expected. PowerShares DB Agriculture (DBA) increased 1.52 percent. VanEck Agribusiness (MOO) lost 3.34 percent on the week.

Anheuser-Busch Inbev (BUD) and Salesforce.com (CRM) both rallied on strong earnings this week, while Lowe’s (LOW) fell following missed earnings. Anheuser-Busch increased earnings 8.2 percent last year. Salesforce.com increased earnings by 25 percent. Lowe’s beat revenue and same store sales estimates, but falling margins cut into profits. The company earned 74 cents per-share, missing estimates by 15 percent.

The Dow Jones Industrial Average led equities higher on Monday. Blue-chip Dow components Cisco (CSCO), Intel (INTC), 3M (MMM), American Express (AXP) and Travelers (TRV) saw impressive gains, and Apple (AAPL) also rallied after rumors of three new phones in 2018 emerged.

Federal Reserve Chairman Jerome Powell will testify before Congress on Tuesday and Thursday. Speculators put the odds of a March rate hike at 87 percent and informal polling shows investor expectations are above 90 percent.

Home sales slowed in January to an annualized pace of 593,000. This is off the peak pace of 696,000 in November and down about 1 percent from January 2017, but still well within the uptrend in place since the home construction industry bottomed out in early 2011. The dip is in line with last week’s existing home sales data. Pending sales for January will be released on Wednesday.

The Case-Schiller home price index for December, January durable goods, core capital equipment orders, and February consumer confidence readings will be out on Tuesday. Manufacturing and service PMIs for February will be out on Thursday. The University of Michigan’s consumer sentiment survey is due on Friday.

Economists forecast revised fourth-quarter GDP growth will be lowered 0.1 percent to 2.5 percent, with jobless claims staying near 45-year lows. Construction spending, personal income and consumer spending for January are all expected to slow from December’s pace.  February auto sales are forecast to rise from January.

Bond yields retreated on Monday with the 10-year yield falling back to 2.85 percent. Bonds rallied across the board, with government, investment-grade, corporate, high-yield and floating-rate funds all advancing. Equity investors ignored the dip. SPDR Financials (XLF) rallied more than 1 percent on the day, while SPDR Utilities (XLU) suffered a small loss.

The S&P 500 Index has grown earnings 14.8 percent in the fourth quarter with 90 percent of companies reporting. Priceline (PCLN), Vale SA (VALE), EOG Resources (EOG), Express Scripts (ESRX), Salesforce.com  (CRM), Lowe’s (LOW), Analog Devices (ADI), Anheuser-Busch (BUD), Best Buy (BBY), Vmware (VMW), J.C. Penney (JCP) and Footlocker (FL) will all report earnings this week.