Daily Market Color

Equities Finish the Month with a Whimper


February Goes Out Like a Lion

The final trading day of February exhibited a similar trend to the one that characterized the majority of the month, with US equites sinking and Treasurys rising as investors favored safe-haven assets in a volatile environment.  The S&P 500 declined more than 1.1% to cap off its worst monthly performance in two years, while the DJIA tumbled 1.5% and Nasdaq fell 0.8%.  Treasury yields/swap rates traded lower from the beginning of the session, reversing a portion of yesterday’s selloff and finishing 1-4bps lower across the curve in a bull flattening pattern.  The 10-year note yield declined 3bps to 2.86%, as the 2s-10s spread narrowed to its lowest levels of the month at 61bps.  In commodities, crude oil futures plummeted more the 2.3% after a report from Bloomberg displayed US stockpiles at higher levels than expected.  WTI crude oil finished the day near its weekly low at $61.50/barrel.  



GDP Revised Down

The Commerce Department’s second estimate of 2017 Q4 GDP headlined today’s economic data releases, where a 0.1% downward revision to the initial estimate resulted from a “downturn in private inventory investment”.  GDP in the fourth quarter expanded at a 2.5% annualized rate, moderately lower than the +3% growth rates posted in Q2 and Q3 of 2017.  Overall, the US economy grew 2.3% last year, beating the +1.5% acceleration recorded during 2016, driven by robust levels of consumer spending (+3.8% in Q4).




In what has become commonplace in financial markets, earlier today Minneapolis Federal Reserve President Neel Kashkari (non-voter) presented a dovish outlook when speaking about his expectations for US monetary policy during 2018.  While just yesterday Fed Chair Jerome Powell expressed confidence that inflation and wages would soon rise in lockstep with the strengthening economy, Kashkari voiced his preference to see “wage growth to continue to build…inflation move toward our 2-percent target…more evidence that the slack in the labor market is being used up.”  Kashkari also added that “we need to let the market work and allow people to find jobs and allow wages to grow, I think we should let the process continue.”  Powell’s testimony before Congress may have initiated the potential for four rate hikes during 2018 in the minds of many market participants, however, Kashkari undoubtedly remains skeptical.



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