Market Perspective for February 24, 2017

The markets hit new all-time highs earlier in the week before a small Friday pullback. The Dow Jones Industrial Average enjoyed its longest record-setting streak since 1987. Consumer staples, financials, healthcare, and technology led performance.

The minutes of the last Federal Open Market Committee meeting suggest another rate hike may be on the horizon. With market expectations of a March hike below 25 percent, a June or July increase is more likely.

Eurozone flash manufacturing and services PMIs were the strongest in six years. In the United States, January existing home sales reached their highest point in more than a decade, handily beating forecast estimates. Average home prices are up 7.1 percent versus a year ago, while new home sales came in below estimates, but above December levels. Weekly unemployment data remains at 43-year lows and the 4-week rolling average dipped again last week. The Kansas City Fed Manufacturing Survey also reinforced sentiment with a five-year high, indicating a steady pace of U.S. economic expansion.

Gold was higher by 1 percent while the U.S. dollar index remained unchanged. The yield on the benchmark 10-year Treasury fell to 2.3 percent and slightly steepened the yield curve. Although markets are looking for short-term rate increases, the 10-year Treasury is near its 2017 lows. Floating-rate bond funds rallied on hardening rate hike expectations, with Fidelity Floating Rate High Income (FFRHX) and RidgeWorth Seix Floating Rate High Income (SAMBX) climbing on the week. Corporate and investment- grade bonds rallied as treasury rates came down.
Shares of Home Depot (HD) rallied after reporting earnings and profits that blew past analyst estimates. Strong housing market data is also buoying the firm’s shares. Wal-Mart (WMT) announced strong holiday sales and shares rose more than 3.5 percent. Tesla (TSLA) shares fell almost 9 percent on Thursday after it reported weaker-than-expected earnings. Investors are concerned the automaker will need a fresh infusion of capital as it rolls out the mass-market Model 3.

While retailer Kohl’s (KSS) beat analysts’ expectations with higher profit margins, their shares were relatively unchanged after weak holiday sales. Nordstrom’s (JWN) shares were also unchanged on the week despite beating Wall Street forecasts. Earlier in the week, Macy’s (M) and Dillard’s (DDS) reported disappointing sales and earnings indicating continued weakness in brick-and-mortar retail.

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