Markets have been weighing the balance of potential renewed economic growth with expectations for rising interest rates. Last week we saw a series of strong economic releases which supports both the rising equity markets and interest rates we saw last week.

Your Weekly Anecdotes:

  • President Trump addressed a joint session of Congress with an inclusive message which was well received by pundits and the markets, but did not offer many substantive policy details. The stock market was led by financials and energy stocks on the de-regulation thematic in the President’s speech.
  • The DJIA pierced 21,000 last week, only 35 days after it broke 20,000. This was the fastest time between 1,000 intervals on record.
  • The stock market rally pushed the TTM P/E ratio over 22x last week which is 5.5 points above the long term average. Remember that markets can live for extended periods of time with elevated valuations. High valuations typically translate into extent of market corrections as opposed to acting catalysts for market corrections.
  • Various technical metrics are signaling temporarily overbought conditions such as 50-day moving average spread, relative strength versus long bond, and percentage of overbought versus oversold stocks. Meanwhile, a short term internal breadth measure (10 day advance/decline) has softened over the past couple of weeks.
  • Volatility remains inordinately low. Bespoke noted the 50 day average intraday high/low dipped to 0.523%, the lowest on record since 1983.
  • The streak of no +1% moves ended at 55 days on Wednesday. The streak of no -1% moves is still intact, currently at 98 consecutive trading days.
  • Having drifted lower since mid-February, the 10yr U.S. Treasury yield did an about face on Wednesday, rising 10bps, the largest single day move since the November elections. The rise in yields reflects more of a growth and inflation view in the bond market versus the safe haven trend in place since mid-February.
  • The yield curve moved substantially higher last week with rates rising nearly 0.20% on the short end and 0.13% on the long end, a curve flattener.
  • On Friday, Fed Chair Janet Yellen signaled a high likelihood for a rate hike at the upcoming March 1516 FOMC meetings. Markets are pricing in a 90% probability at this point so the hike is unlikely to surprise markets and is probably fairly well priced in.

Your Weekly Economic Updates:

  • The second revision of U.S. GDP came in at 1.9%, slightly missing expectations for 2.1%.
  • Weekly jobless claims came in at 223,000, a level not seen since 1973 when our country’s population was 212 million (today we are 323 million). The four week average jobless claims are also at levels not seen since 1973.
  • The February ISM Manufacturing survey registered 57.7, the highest mark since August 2014. The ISM Non-Manufacturing survey registered 57.6, also firmly in expansionary territory (>50).
  • February auto sales fell 1.3% yoy, a meaningful decline from the robust pace at the end of 2016.
  • Strong consumer confidence persisted in February. The reading of 114.8 is the highest since July 2001.
  • Citigroup’s Economic Surprise Indices are registering strong marks globally with the notable exception of Japan.