The S&P 500 rose 2.2% on Friday in a continuation of yesterday’s rebound rally, as the market hoped that the deadly Russia-Ukraine situation would soon be over with minimal economic impact to the U.S.
The Dow Jones Industrial Average (+2.5%) and Russell 2000 (+2.3%) also gained more than 2.0% while the Nasdaq Composite (+1.6%) was the relative underperformer with a 1.6% gain after outperforming yesterday.
Prior to the open, futures turned positive after reports indicated that Russia was ready to seek diplomatic solutions with Ukraine in Minsk, Belarus. Presumably, that would happen after Russia gets what it wants since Russian troops were reportedly closing in on Ukraine’s capital.
Since no sanctions were placed on Russia’s oil and gas exports, there was optimism that the situation wouldn’t exacerbate inflation pressures as initially feared. WTI crude ($91.59/bbl, -1.21, -1.3%), natural gas ($4.51/MMBtu, -0.16, -3.3%), and wheat ($859.60/bu, -$75.00, -8.0%) futures each settled lower.
The advance in equities was steady and broad-based with all 11 S&P 500 sectors closing higher between 1.4% (information technology) and 3.6% (materials). Interestingly, the defensive-oriented consumer staples (+3.1%), utilities (+3.1%), and health care (+3.0%) sectors were among the leaders, as investors respected the possibility for a negative-sounding update over the weekend.
There was a slight hiccup on news that the U.S. will join the EU with its own sanctions on President Putin, but stocks still closed at session highs.
Despite the improved geopolitical perspective, investors (and the Fed) were reminded that inflation is still a sticky situation. The Fed’s preferred inflation gauge – the PCE Price Index – continued to run hot in January.
Specifically, the PCE Price Index rose 0.6% (Briefing.com consensus 0.5%), taking the year-over-year growth rate to 6.1% from 5.8%. The core PCE Price Index, which excludes food and energy, rose 0.5% (Briefing.com consensus 0.5%), taking the year-over-year rate to 5.2% from 4.9%.
The 2-yr Treasury note yield increased five basis points to 1.57%, although that was below the level it was trading prior to the PCE inflation data. The 10-yr yield increased two basis points to 1.99%. The U.S. Dollar Index fell 0.6% to 96.54. The CBOE Volatility Index fell 9.0% to 27.59.
Reviewing Friday’s economic data:
- Personal income was unchanged month-over-month in January (Briefing.com consensus -0.3%), but real disposable personal income was down 0.5%. Personal spending was up a robust 2.1% (Briefing.com consensus 1.5%), but clearly, consumers were spending out of savings as the personal savings rate, as a percentage of disposable personal income, fell to 6.4% from 8.2%. The PCE Price Index was up 0.6% (Briefing.com consensus 0.5%), taking the year-over-year rate to 6.1% from 5.8%. The core PCE Price Index, which excludes food and energy, was up 0.5% for the fourth straight month (Briefing.com consensus 0.5%), taking the year-over-year growth rate to 5.2% from 4.9%.
- The key takeaway from the report is that the Fed still has an acute inflation problem on its hands with, or without, the Ukraine situation.
- Durable Goods Orders jumped 1.6% month-over-month January (Briefing.com consensus 0.6%) following a 1.2% increase in December. Excluding transportation, durable goods orders were up 0.7% (Briefing.com consensus 0.3%) on the heels of a 0.9% increase in December.
- The key takeaway from the report was the recognition that business spending picked up in January, evidenced by the 0.9% increase in nondefense capital goods orders excluding aircraft that followed a 0.4% increase in December.
- The final reading for the University of Michigan Consumer Sentiment Index for February was revised up to 62.8 (Briefing.com consensus 61.6) from the preliminary reading of 61.7. The final reading for January was 67.2.
- The key takeaway from the report is that the decline in sentiment in February was driven entirely by households with incomes of $100,000 or more, demonstrating the growing concerns about inflation, rising interest rates, and loss of purchasing power that could eventually manifest itself in weaker levels of consumer spending in coming months.
- Pending home sales fell 5.7% m/m in January following a revised 2.3% decline (from -3.8%) in December.
Looking ahead, investors will receive the Chicago PMI for February and the Advance readings for International Trade in Goods, Retail Inventories, and Wholesale Inventories for January on Monday.
- Dow Jones Industrial Average -6.3% YTD
- S&P 500 -8.0% YTD
- Russell 2000 -9.1% YTD
- Nasdaq Composite -12.5% YTD
Overseas:
- Europe: DAX +3.7%, FTSE +3.9%, CAC +3.6%
- Asia: Nikkei +2.0%, Hang Seng -0.6%, Shanghai +0.6%
Commodities:
- Crude Oil -1.47 @ 91.81
- Nat Gas -0.16 @ 4.51
- Gold +0.10 @ 1888.90
- Silver +0.08 @ 24.02
- Copper +0.02 @ 4.49