Market Update

  • Stocks pause after string of record highs. (10:29am ET) U.S. equities are largely unchanged this morning after all three major indexes posted a fifth consecutive record close on Wednesday, fueled by further gains in financials (+0.7%), as well as healthcare (+1.2%) and consumer staples (+0.8%). Energy (-0.4%) and utilities (-0.4%) lagged as oil prices slipped and interest rates continued to tick higher. Overseas, Asian markets finished mixed amid a relatively quiet session; the Shanghai Composite rose 0.5% on the heels of strength in bank stocks while comments from a Bank of Japan governor weighed on the Nikkei (-0.5%). Turning to Europe, major indexes are mostly lower midday as traders eye corporate earnings reports amid little economic data; the STOXX 600 (-0.4%) is poised to snap a seven-day win streak. Elsewhere, WTI crude oil ($53.09/barrel) is steady, COMEX gold ($1241/oz.) is moving higher, and Treasury rates are pulling back with the yield on the 10-year note down 4 basis points (0.04%) to 2.46%.

Macro View

  • Housing data lean positive despite headwind from rising rates. Several housing market data releases over the last two days have painted a guardedly optimistic picture of the housing sector. Yesterday’s NAHB Housing Market Index for February, a measure of homebuilder sentiment, declined modestly from its post-election surge but remains solidly in positive territory. Housing starts for January topped consensus expectations but declined from upwardly revised December levels. Permits, which tend to be more of a leading indicator, easily topped consensus estimates and accelerated from December’s upwardly revised data. On the other side of things, mortgage applications fell in the week of February 10 for both purchases and refinancing. The housing market will continue to see the competing impact of higher prices and rising rates compared to a strong consumer, economic growth prospects, and supportive demographics, likely resulting in net upside if rates rise at a modest pace.
  • Industrial production falls. Industrial production contracted in January, missing consensus expectations, weighed down by a sharp decline in the utilities component that was more reflective of the weather than economic activity. Other internal data were modestly stronger. Manufacturing grew 0.2% but with a decline in capacity utilization, although the number was more robust ex-autos. Mining, which includes oil and gas, jumped an impressive 2.8%. It’s the smallest component of industrial production, but has been watched closely.
  • Still no signal from claims. Initial claims for unemployment insurance came in at 239,000 last week, remaining near 40-year lows and continuing to signal that the labor market is tightening. We have found that claims provide a recession signal when they rise between 75,000 and 100,000 over a six-month period. Six months ago, the four-week average for claims was 265,000. Over the last four weeks, claims have averaged 245,000 per week, so claims are running roughly 20,000 below six-month-ago levels and are not signaling a recession.
  • The best win streak in 25 years. The Dow, S&P 500, and Nasdaq have all hit all-time highs for five consecutive days for the first time since January 1992 (that streak ended at six days in a row). The Russell 2000 (small caps) has made a new high four days in a row, with the last time all four major indexes made new highs four days in a row being June 1995. Turning to the S&P 500, it has now gained for seven consecutive days. It last reached eight up days in a row in July 2013 and nine in a row in November 2004.

Monitoring the Week Ahead

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Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

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