Weekly market review
Despite ongoing concerns about inflation and the Fed's plan to raise rates higher for longer, the stock market managed to break its losing streak this week. Technical buying interest and a drop in market rates towards the end of the week supported this upside bias. Additionally, there may have been a feeling that the market was oversold on a short-term basis. This week, data releases, such as the February ISM Manufacturing Index, weekly initial jobless claims, and revised Q4 productivity, stoked inflation concerns. However, despite rising market rates, most of the S&P 500 sectors logged a gain this week, with the materials, communication services, and industrials sectors leading the way. Only the utilities and consumer staples sectors declined. The U.S. Dollar Index fell, while WTI crude oil futures and natural gas futures rose.
On Monday, the stock market had a positive bias due to technical factors such as the S&P 500 closing above its 200-day moving average and the 10-yr note yield staying below 4.00%. The main indices had strong momentum in the early going but quickly dissipated and spent most of the session in a steady grind lower. However, they ultimately settled off their lows for the day. Economic data showed a decline in durable goods orders but strength in nondefense capital goods orders.
On Tuesday, the stock market was mixed with both buyers and sellers lacking conviction, and losses were relatively modest in scope. Mixed reactions to the latest slate of earnings news contributed to the mixed price action. Economic data showed a monthly decrease driven entirely by consumers' short-term outlook.
On Wednesday, the stock market had a mostly negative start to the new month. The S&P 500 and Nasdaq experienced losses due to weakness in the mega cap space, while the Dow had a small gain. The S&P 500 found support at its 200-day moving average twice, which limited the downside momentum. The increase in market rates, in response to the ISM Manufacturing Index and comments from Fed officials, had a significant impact on stocks. The Prices Index rose to 51.3%, marking the first price increase in four months, which added to rate hike concerns. Disappointing earnings and guidance from Lowe's, Rivian, Kohl's, and Agilent Technologies also acted as a headwind for stocks. Economic data from Wednesday showed that manufacturing activity continued to contract in February, albeit at a slightly slower pace, and prices increased for the first time in four months, which will keep the Fed with a tightening bias. New single family construction continued to decline due to higher interest rates, making construction projects more expensive to finance, at a time when broader economic activity is slowing.
On Thursday, the stock market was uneven with the Dow Jones Industrial Average making gains due to Salesforce's positive earnings, while the S&P 500 and Nasdaq struggled due to concerns over rising market rates. The 10-year note yield increased by eight basis points to 4.07%, reflecting worries over the rising core CPI in the eurozone. Despite this, technical buying interest kept the downside moves limited. Later in the day, Atlanta Fed President Bostic's suggestion of a 25 basis points rate hike in March was viewed as dovish and became an excuse for renewed buying interest. Economic data from Thursday revealed a tight labor market with initial claims remaining low and unit labor costs rising.
On Friday, the stock market experienced a significant increase, with the Dow, Nasdaq, and S&P 500 rising by 1.2%, 2.0%, and 1.6%, respectively. Equities were supported by the Treasury market, as the 10-year note yield fell to 3.96% and the 2-year note yield fell to 4.86%. Technical buying interest may have also contributed to Friday's gains, following the S&P 500's support at its 200-day moving average on Thursday. In economic news, the February IHS Markit Services PMI was 50.6, while the ISM Services PMI was 55.1%, indicating steady activity in February despite expectations for slower growth. Additionally, prices continued to rise, which could give the Fed reason to continue its rate hike campaign.