The Week In Review

3/10/17

 A rate hike at next week's FOMC meeting appears to be a mere formality following the better than expected Employment Situation Report for February, which crossed the wires early Friday morning. That seemed to be alright with investors as they pushed the major averages higher to finish a slightly disappointing week on a positive note. The Nasdaq (+0.4%) led the modest advance with the S&P 500 (+0.3%) and the Dow (+0.2%) closing just a step behind. For the week, the benchmark S&P 500 lost 0.4%.

The CME Fed Watch Tool now assigns an implied probability of 93.0%, up from 88.6% on Thursday, to a rate hike at the March 14-15 FOMC meeting after the February jobs report showed that nonfarm payrolls increased by 235,000 (Briefing.com consensus 188,000) and average hourly earnings rose 0.2% (Briefing.com consensus +0.2%). The Federal Reserve will announce its decision on Wednesday at 2:00 pm ET.

Crude oil continued to command investors' attention again on Friday, falling 1.5%. The day's tumble left the energy component 8.8% lower since Wednesday's bearish EIA inventory report, which showed record high U.S. inventories. WTI crude finished the Friday session at $48.49/bbl.

All things considered, the energy sector (-0.1%) held up relatively well, finishing the day near its flat line. Real estate (-0.2%) was the only space to post a wider decline.

Conversely, at the top of the leaderboard, the industrials (+0.7%), utilities (+0.8%), and telecom services (+0.7%) spaces settled with solid gains. The top-weighted technology sector (+0.5%) also outperformed as chipmakers finished Friday's session with notable gains; the PHLX Semiconductor Index closed higher by 1.2%.

Retailers provided the consumer discretionary space (+0.1%) with some support, advancing the SPDR S&P Retail ETF (XRT 42.14, +0.31) higher by 0.7% in the wake of Ulta Beauty's (ULTA 286.42, +12.65) most recent earnings report. The company added 4.6% after reporting better than expected top and bottom lines, but it wasn't enough to keep the consumer discretionary sector from underperforming as restaurants weighed.

In the Treasury market, U.S. sovereign debt saw an uptick in buying interest following the release of the February jobs report. The benchmark 10-yr yield closed three basis points lower at 2.58%.

On a related note, the U.S. Dollar Index (101.22, -0.76) finished solidly lower, losing 0.8% in Friday's session.

Friday's economic data included the Employment Situation Report for February and the February Treasury Budget:

February nonfarm payrolls came in at 235,000 while the Briefing.com consensus expected a reading of 188,000. The prior month's reading was revised to 238,000 from 227,000. Nonfarm private payrolls added 227,000 while the Briefing.com consensus expected an increase of 185,000. The unemployment rate decreased to 4.7% (Briefing.com consensus 4.7%). Average hourly earnings increased 0.2% (Briefing.com consensus +0.2%), while the previous month's reading was revised to 0.2% (from +0.1%). The average workweek was reported at 34.4, which is in line with the Briefing.com consensus. The previous month's reading was left unrevised at 34.4.

Average hourly earnings increased 0.2%, leaving them up 2.8% year-over-year and solidifying the prevailing belief that the Federal Reserve will raise the target range for the fed funds rate at its March 14-15 FOMC meeting. That is the key takeaway from this report, followed closely by the encouraging understanding that the labor market is strengthening, which is aiding the prospects for stronger economic growth.

The Treasury Budget for February showed a deficit of $192.0 billion versus a deficit of $192.6 billion for February 2016. The Treasury Budget data is not seasonally adjusted, so the February deficit cannot be compared to the $51.3 billion deficit registered in January.

Investors will not receive any economic data on Monday.

Nasdaq Composite +8.9% YTD

S&P 500 +6.0% YTD

Dow Jones Industrial Average +5.8% YTD

Russell 2000 +0.6% YTD

Week in Review: Taking a Breather

After posting six consecutive weekly gains, the stock market saw its third weekly decline of 2017. However, just like the other two weekly downticks, this week's retreat was minor. The S&P 500 shed 0.4%, narrowing its first quarter gain to 6.0%.

The trading week started on an unassuming note with stocks showing limited reaction to a proposal put forth by House Republicans to replace the Affordable Care Act. President Donald Trump spoke favorably about the proposal, but Republicans in Congress have yet to fully support the effort, which has led to concerns that slow progress on the health care front would stymie corporate and personal tax reform, which the market has been anxiously awaiting.

Equity indices inched lower through the first three days of the week, but on Wednesday, it was crude oil that stole the attention, falling more than 5.0% to a fresh 2017 low near $50.30/bbl. The energy component snapped out of a five-point range that has held since the start of the year, responding to the news of yet another significant inventory build. Crude's retreat continued over the next two days, leaving the energy component near $48.50/bbl at the end of the week. Oil lost more than 9.0% during the week while the energy sector surrendered 2.6% since last Friday.

There wasn't much change on the central bank front as Wednesday came and went without any major surprises from the European Central Bank. The ECB made no changes to policy and did not hint at impending tightening even though the 2017 GDP growth forecast for the Eurozone was nudged up to 1.8% from 1.7%. It is worth noting that reports that circulated on Friday suggested the ECB may begin raising rates prior to the end of its asset purchase program. The news coincided with comments from Bundesbank President Jens Weidmann, who said 2017 eurozone inflation is likely to be "far higher" than projected.

As for the Fed, the central bank is now widely expected to announce its next rate hike on March 15 after the Employment Situation report for February did not upset the overall economic picture. With the report showing the addition of 235,000 payrolls, headline expectations (Briefing.com consensus 188K) were beat handily while average hourly earnings increased an in-line 0.2%, bringing the year-over-year growth rate to 2.8%.

The fed funds futures market responded accordingly, pointing to a 93.0% implied likelihood of a rate hike being announced on Wednesday, up from last week's 79.9%.