Although trading marginally lower on the week, major indexes remained within the tight trading range established in December. President Trump’s comments regarding the strength of the U.S. currency sent the dollar index lower before it rebounded following remarks by Federal Reserve Chair Janet Yellen.
Overseas currencies, especially the British pound, also experienced volatility. Prime Minister Theresa May outlined her nation’s plan for leaving the European Union irrespective of other trade agreements. Although the euro rose before the official interest rate announcement from the European Central Bank (ECB), the currency fell after the statement was released. The ECB left interest rates unchanged and plans to continue the quantitative easing (QE) program outlined last month. While the benchmark 10-year Treasury was lower by 2 percent, domestic markets finished the week down by less than 1 percent. Reflecting overseas trading, shares of MSCI Emerging Markets ETF (EEM) and iShares MSCI EAFE (EFA) were also marginally lower. Gold remains slightly above $1,200 per ounce.
Although the Empire State Manufacturing Index showed a lower than expected growth rate, the Philly Fed Survey surged 23.6 percent in January to easily beat analysts’ forecasts of 16 percent. This was the fastest growth rate since 2014. The Federal Reserve Beige Book released Wednesday indicated a slow, but steady pace of growth. The report highlighted a tight labor market and a moderate increase in inflation. The Labor Department’s U.S. Consumer Price Index rose 0.3 percent, as anticipated, driven by a rise in rents and gasoline prices. Industrial production also grew at the fastest pace in two years. Weekly unemployment claims unexpectedly came in lower than the previous report.
Steady interest rates and a drop in Federal Housing Administration insurance premiums drove an increase in mortgage refinancing last week, while purchase applications remained steady. Housing starts increased more than expected due to an increase in multifamily rental units. West Texas Intermediate Crude (WTI) fell as the weekly inventory report showed a larger than expected build, though oil remains above $52 per barrel. Shares of the Energy Select Sector SPDR ETF (XLE) were marginally lower for the week.
Shares of both Morgan Stanley (MS) and Goldman Sachs (GS) traded slightly lower as investors took profits. Both companies handily beat analysts’ earnings per share (EPS) and revenue forecasts. Despite benefiting from the perceived favorable environment that investors expect under the new administration like other financial institutions, shares of Citigroup (C) also sold off after the company reported impressive EPS and revenue numbers. In contrast, shares of Netflix (NFLX) surged higher by more than 5 percent when the company reported EPS, revenue and subscriber growth figures that easily beat Wall Street estimates. While International Business Machines (IBM) beat estimates when it reported on Thursday, the company’s revenues declined for the 19th straight quarter. Shares were lower by 3.5 percent in after-hours trading as IBM continues the difficult transition from an operating hardware and systems company to one focused on cloud services and artificial intelligence.