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The 10-year Treasury Hits 1.13% as Investors Pile into Bonds, Etsy and TJX Earnings Impress While LendingTree and Shake Shack Disappoint

Weekly Update – February 28, 2020

  • Stocks fell sharply across the globe as the spreading coronavirus drove fears of economic retrenchment and shrinking corporate profits. Investors fled risk assets such as oil and stocks; Brent crude and the S&P 500 sustained their worst weekly losses since the financial crisis; all 11 S&P 500 sectors fell into negative territory year-to-date.
  • Investors piled into U.S. government bonds throughout the week; the rally intensified on Friday after the Federal Reserve issued a statement asserting, “…We will use our tools and act as appropriate to support the economy.” The two-year U.S. Treasury note, which is highly sensitive to monetary policy, fell from 1.28% to 0.88% as investors bet that the Fed would cut interest rates as soon as March. The yield on the 10-year Treasury fell from 1.47% to 1.13% at session-end.
  • Gold fell as bond prices rose, and the U.S. dollar index declined against a basket of major currencies.
  • With over 95% of S&P 500 index companies reporting 4Q19 results, 70% have exceeded earnings per share expectations, while about 64% have beaten revenue expectations. As of February 28, 2020, Refinitiv estimated the S&P 500’s 4Q19 earnings growth rate at 3.1% and its 12-month forward P/E ratio at 17.0. Etsy, Hewlett Packard and TJX Companies impressed; whereas LendingTree, Shake Shack and VMware disappointed.
  • The final February reading of the University of Michigan sentiment index showed that despite the market tumult, consumers remained upbeat: the index ticked up from 100.9 to 101.0. The current conditions index increased one point to 114.8 and the expectations index fell by half a point to 92.1. One-year inflation expectations were down to 2.4%. Interviews occurred between Jan. 29 and Feb. 25.
  • The February Chicago PMI reading of 49.0 was the highest since last August. January durable goods orders fell 0.2% month/ month. Durable goods ex-transportation increased to 0.9%. Core capital goods orders — a closely watched measure of U.S. business investment — rose 1.1%.
  • January new home sales of 764,000 were up 7.9% m/m, reaching their highest point since mid-2007. Pending home sales were up 5.2% to 108.8, above estimates for 105.7.
  • January personal consumption expenditures of 0.2% m/m lagged the prior month reading of 0.4%; personal income was higher at 0.6% versus 0.1% in December.

CPWM Weekly Market Monitor (2020.02.28)

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