The Week In Review

2/15-2/19/16

The major averages ended an up week on a mixed note as investors deliberated the effect of hotter than expected CPI data on future fed funds rate hikes. Meanwhile, a fresh dose of weakness from the oil patch and some disappointing earnings results and guidance added fodder to today's early selling. The major averages were able to recover from their lows and end with the Nasdaq Composite (+0.4%) leading both the S&P 500 (UNCH) and the Dow Jones Industrial Average (-0.1%). The indices managed respective weekly gains of 3.9%, 2.8%, and 2.6%.

Prior to the opening bell, market participants received hotter than expected CPI data that showed a flat reading for total CPI in January (Briefing.com consensus -0.1%) and a 0.3% month-over-month increase in core CPI (Briefing.com consensus +0.1%). While the Fed favors the PCE Price Index when discerning inflation trends, it will certainly view this CPI data as a marker of progress toward achieving its inflation target. That understanding raised some doubts about the Fed holding off on another rate hike this year. Currently, the fed funds futures market estimates the likelihood of a rate increase through 2016 as below 50.0%.

A broad-based decline followed this uncertainty as sectors trimmed their gains from earlier in the week. Four sectors were able to remain in positive territory for the day with consumer discretionary (+0.3%), technology (+0.2%), consumer staples (+0.2%), and financials (+0.1%) ending above their flat lines. Meanwhile, commodity-sensitive materials (-1.1%) and telecom services (-0.7%) settled with the largest losses.

A decline in crude oil pushed the energy sector to the bottom of the leaderboard for most of the day, as the energy-component slipped 3.5% to $31.74/bbl to end its week. In the energy space, independent oil and gas companies posted some of the largest losses. On that note, Anadarko Petroleum (APC 35.35, -1.68) plunged 4.5% after the company had its senior debt downgraded to Ba1 from Baa2 by Moody's.

In the heavyweight technology space, the high-beta chipmakers demonstrated relative strength with component Applied Materials (AMAT 18.38, +1.21) leading the PHLX Semiconductor Index (+0.5%). Applied Materials rallied 7.1% after reporting bottom-line results above analyst expectations while issuing better than expected earnings guidance for the second quarter.

Industrial component Deere (DE 76.96, -3.35) surrendered 4.2% after lowering its full year 2016 revenue estimates by 10.0%. This tumble also followed an earnings beat on lighter than expected revenue. Dow component Caterpillar (CAT 65.41, -0.71) demonstrated relative weakness as it traded lower in sympathy with the broader industrial sector (-0.2%).

Retailers and apparel names underperformed in the consumer discretionary space (+0.3%) after V.F. Corp. (VFC 58.55, -2.70) and Nordstrom (JWN 49.17, -3.55) both missed bottom line results and issued below consensus guidance. The discretionary sector was the top performer of the week, spiking 4.3%.

The Treasury complex ended the day slightly lower after retracing the bulk of its early losses. The yield on the 10-yr note ended higher by one basis point at 1.75%.

On the currency front, the U.S. Dollar Index (96.63, -0.32) ended its day lower as pressure from the strengthening yen weighed. The dollar/yen pair slipped 0.6% to 112.64.

Today's participation was comparable to the recent average with more than 1.13 billion shares changing hands at the NYSE floor.

Taking another look at the January CPI Report:

In January total CPI was unchanged (Briefing.com consensus -0.1%) as a 2.8% drop in the energy index was offset by increases across-the-board for all items less food and energy.

That would be core CPI and it increased 0.3% month-over-month (Briefing.com consensus +0.1%).

With the January readings, total CPI is up 1.4% year-over-year on an unadjusted basis while core CPI is up 2.2%. In fact, that is the highest 12-month change in core CPI since June 2012 and it exceeds the 1.9% average annualized increase over the last 10 years.

The Fed favors the PCE Price Index when discerning inflation trends, yet it will certainly view the CPI data as a marker of progress toward achieving its inflation target.

The largest price increases contributing to core inflation in January were seen in the price indexes for apparel (+0.6%) and medical care services (+0.5%), yet a 0.3% increase for the shelter index certainly carried some influential weight in pushing up core inflation. These are trends that consumers might not like to see, yet they are precisely what the Fed is hoping to see.

There is no economic data of note set to be released on Monday.

Russell 2000 -11.1% YTD

Nasdaq -10.0% YTD

S&P 500 -6.2% YTD

Dow Jones -5.9% YTD

Week in Review: Oil and Stocks Climb, But So Does Yen

The stock market rebounded from two weeks of losses with the S&P 500 climbing 2.8% during the holiday-shortened week. The benchmark index fared better than the Dow Jones Industrial Average (+2.6%), but worse than the Nasdaq Composite, which spiked 3.9%.

The advance in U.S. equities occurred alongside gains in overseas markets like Japan's Nikkei (+6.8%), Hong Kong's Hang Seng (+5.3%), China's Shanghai Composite (+3.1%), Germany's DAX (+4.8%), and France's CAC (+5.7%). Even Italy's MIB managed a 2.4% gain for the week despite a 1.4% drop on Friday that was highlighted by aggressive selling in bank stocks.

U.S. stocks also struggled at the start of Friday's session, but the S&P 500 was able to end the day little changed thanks to relative strength in top-weighted sectors like technology and financials. For the week, the two sectors gained 3.8% and 2.5%, respectively, with the financial sector narrowing its 2016 loss to 12.2%.

The holiday-shortened week started with a three-day rally that lifted stocks off their February lows. True to recent form, the move occurred alongside an advance in crude oil with the commodity seeing a boost amid reports that a production freeze agreement between OPEC and non-OPEC members may be in the cards. WTI crude ended the week higher by 7.8% at $31.74/bbl with short covering likely contributing to the surge. Separately, dovish comments from FOMC voting members Eric Rosengren and James Bullard contributed to the rally in equities.

Interestingly, the advance in stocks and oil took place without the presence of risk-on undertones in the foreign exchange market. To that point, the Japanese yen registered its third consecutive weekly gain (+0.4%) against the dollar, pressuring the dollar/yen pair to 112.63 after a brief test of the 114.80 area early in the week. The currency pair ended the week fewer than 200 pips above its 2016 low of 110.96 that was notched on February 11. For its part, the Dollar Index (96.63, -0.32) snapped its two-week skid, ending the week higher by 0.7%.