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.