Equities have regained more than half of last week’s pullback. The Nasdaq and Russell 2000 were positive on the week in early morning trading, while the Dow Transports lagged, still down 1.4 percent.
Technology and financials earnings drove the broader market advance, while higher interest rates lifted bank stocks.
Rising rates on Wednesday weighed on the utilities sector following a week of relative outperformance.
Bank stocks have outperformed technology shares over the past week due to persistently high interest rates.
January CPI came in hotter than expected at 0.5 percent headline and 0.3 percent core, unchanged over the past 12 months.
The 10-year and 30-year Treasury yields rose on Wednesday and closed at new multi-year highs over the past week, and new highs again following the inflation report.
While long-term rates are approaching resistance, short-term rates are rallying. The odds of a Federal Reserve March rate hike increased from 77 to 83 percent on Wednesday. The odds of three hikes this year climbed past 60 percent. One- and three-month Libor have begun pricing in this expected rate increase.
Although floating-rate funds and short-duration funds are not vulnerable to rising interest rates, they dipped a bit as credit risk ticked up amid last week’s sell-off in stocks. Still, floating-rate funds outperformed investment-grade, corporate and high-yield bonds.
The yen rallied on Wednesday, extending a six-week run. The move closed the gap between gold and yen that had widened since last summer.
Emerging markets rallied in the past week and are pushing towards relative highs made in September.
Oil prices stabilized this week after sliding with equities. West Texas Intermediate crude oil was back above $60 on Wednesday after a drawdown of inventory. SPDR Energy (XLE) stabilized as well.
Healthcare stocks rallied strongly this week. Biotechnology merger activity drove gains in January, but the volatility-driven sell-off buffered the advance. As stocks recover, investors refocused on the upside potential in the sector. Biotech, medical devices and healthcare providers are up for the year. Pharmaceuticals have continued to drag on performance.
