Market Perspective for February 12, 2018

Equities retraced more than 50 percent of last week’s losses on Monday. The S&P 500 Index gained 1.46 percent. Industrials, technology, and financials pulled indexes higher. Utilities underperformed despite a decline in interest rates as traders reversed defensive positions. SPDR Materials (XLB) led performance on Monday after DowDuPont (DWDP) climbed 3.40 percent. The Dow Transports outperformed with an increase of 1.62 percent, the Russell 2000 lagged with a gain of 0.89 percent.

The VIX eased to 25.6 on Monday. The spike to 50 last Monday in large part sparked the sell-off. The prior 52-week high was 17.3. If the market sustains its rally this week, the VIX could normalize to the low teens by Friday.

January inflation data will be closely watched on Wednesday. Economists forecast 0.4 percent headline consumer inflation and 0.2 percent in core CPI. Retail sales are projected to rise 0.2 percent and 0.4 percent ex-autos. Later in the week, we’ll see January industrial production, the February NAHB Homebuilders’ index, housing starts and building permits for January.

Crude oil started the week higher, but bears put up some resistance at the $60 level. Mild winter weather pushed natural gas back towards December lows. SPDR Energy (XLE) gained 1.44 percent on the day.

The 10-year Treasury yield finished at 2.86 percent on Monday, the 30-year Treasury yield at 3.14 percent. The key levels to watch in the week ahead are 3.0 percent on the 10-year and 3.3 percent for the 30-year. Bond bears will stay in hibernation as long as those levels provide stiff resistance.

The U.S. Dollar Index took a breather after a six-day winning streak. Even though the U.S. dollar weakened, foreign shares trailed domestic shares yet again. iShares MSCI EAFE (EFA) rose 1.37 percent on Monday. iShares MSCI Emerging Markets (EEM) gained 1.57 percent. iShares China (FXI), a driver of recent emerging market strength, advanced only 1.24 percent.

President Trump unveiled a budget that includes $1.5 trillion in infrastructure spending. The plan calls for $200 billion in federal spending for each of the next 10 years, with incentives designed to attract state, local and private spending of roughly $1.3 trillion. Global X U.S. Infrastructure Development (PAVE) climbed 1.44 percent, in line with the broader stock market.

We’ve passed the peak of earnings season with only about a quarter of the S&P 500 Index left to report.  The blended earnings growth rate is 14 percent coming into this week, up from the 11-percent estimate at year-end. (PEP), Baidu (BIDU), Occidental Petroleum (OXY), MetLife (MET), Martin Marietta Materials (MLM), Cisco (CSCO), Applied Materials (AMAT), Marriot International (MAR), Credit Suisse (CS), Zoetis (ZTS), Coca-Cola (KO), KraftHeinz (KFT), Deere (DE) and Enbridge (ENB) are all scheduled to report this week.

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