Feb 12th Morning Note
Recapping last week
It was quiet overnight as most markets either shut for Chinese New Year or National Day in Japan. Let’s review last week’s price action:
S&P 500 Reaches New All-Time-Highs
The S&P 500 Index achieved a significant milestone, surpassing the 5000 level for the first time. This was a result of a 1.37% gain over the week, marking the fifth consecutive week of gains and the 14th gain in the last 15 weeks. The equal-weighted S&P 500 increased a more modest +0.47%.
Mag7 Outperformance
The equity market rally was concentrated, particularly in the Tech sector, which saw a 1.50% increase in the S&P. This was largely driven by the "Magnificent Seven" and the semiconductor sector, highlighted by the Philadelphia Semiconductor Index's 5.32% jump following strong performance from ARM and Nvidia's discussions with OpenAI.
On Friday, there was a rebound in U.S. regional banks, evidenced by the regional banking KBW index which climbed 1.85%. However, this index still closed the week 1.31% lower. Notably, New York Community Bank saw a significant increase of 16.9% following the announcement that its management had acquired more shares. Despite this uptick, NYCB's weekly performance showed a decline of 18.9%, highlighting ongoing instability in the Commercial Real Estate (CRE) market.
Fed Funds Rate Expectations
Investors adjusted their expectations for future rate cuts due to stronger-than-anticipated US economic data. This led to an increase in the anticipated rate for the December 2024 meeting and a similar shift in Europe, where expectations for ECB rate cuts were scaled back.
Rise in Treasury Bond Yields
Bond yields saw a notable increase, with the 10-year yields rising by 15.4 basis points and the 2-year yields by 11.6 basis points. This was partly influenced by the revisions in US CPI data, which initially triggered a relief rally in yields but ultimately reversed to end higher.
Surge in Oil Prices and Geopolitical Factors
Brent crude oil prices surged by 6.28%, influenced by geopolitical tensions, including Israel's rejection of a ceasefire offer from Hamas and potential US actions to strengthen sanctions against Iranian oil. This contributed to a more volatile and uncertain global economic environment.
This week’s events
NY Fed 1Y Inflation Expectations (Today)
US CPI (Tuesday)
Retail sales, Industrial Production, Factory Orders (Thursday)
Housing data throughout the week
US PPI (Friday)
University of Michigan consumer survey (Friday)
Fed Speaker (today)- Bowman (hawk), Barker (neutral) and Kashkari (hawk).