The holiday shortened week (Presidents Day) saw the S&P notch another new record high but ultimately finished lower along with treasury yields as weak economic data on Friday and mounting CoVid-19 concerns overtook sentiment. Commodity markets moved higher as both gold and oil rallied on the week. A near record high S&P 500 and simultaneous near record low 10yr yield illustrates the bipolar nature of the market today – a potential precursor to some market consolidation in the near term.

Market Anecdotes

  • While the net new cases turned negative last week for the first time, the average number of new cases has increased materially over the past week.
  • As evidence of Covid-19 economic damage, it is estimated that global airlines stand to lose $30b and car sales in China fell 92% in the first half of February.
  • Last week marked the unofficial end of 4Q earnings season with YoY blended earnings and revenue growth of 0.9% and 3.6% respectively.
  • FactSet reported the S&P 500 Fwd P/E ratio hit 19.0 for the first time since 2002 last week, well above the five-year (16.7), 10-year (14.9), 15-year (14.6), and 20-year (15.5) average multiples.
  • The 10yr yield at 1.47% is within striking distance of the all-time record low yield of 1.366% set back in 2016 but the 30yr yield marked a new all-time record low of 1.90% last week.
  • Gold is near an eight-year high and the U.S. dollar has traded higher in 12 of the past 15 trading days – both clear safe haven rally beneficiaries.
  • Attention to the U.S. election is ramping up as Bloomberg fared poorly in his first debate appearance, leaving Sanders, a self-described Democratic Socialist, the front-runner for the Democratic nomination.
  • FOMC minutes from the January Fed meeting reinforced the status quo but the combination of weak PMI data and heightened CoVid-19 anxiety pushed probabilities of a cut at the April FOMC meeting over 50% (51.9%) for the first time.

Economic Release Highlights

  • Flash U.S. PMI (C, M, S) reading (49.6, 50.8, 49.4) caught markets by surprise with overall output contracting for the first time since 2013. The composite reading fell sharply from January’s 53.3 level, mostly due to a significant decline in service activity.
  • Flash Eurozone PMI (C, M, S) reading (51.6, 48.4, 52.8) reflected the fastest growth rate in six months and the rate of expansion accelerated for a third consecutive month.
  • The February housing market index came in the consensus range at 74, after posting back to back readings near three-decade highs in the past two months.
  • January housing starts (1.567M) and permits (1.551M) both exceeded expectations by over 100,000.
  • January PPI came in notably higher than expected across the board with both headline and core M/M both clocking 0.5% v 0.1% and headline Y/Y at 2.1% v 1.7%.
  • The February Empire State Manufacturing Survey crushed expectations (12.9 v 4.0) on Wednesday and the Philly Fed Manufacturing Survey posted an absolute blowout (36.7 v 11.0).