Market Pulse

In focus

February concluded last week with stocks down on the month after a strong rally in January. U.S. Treasury yields also reversed course in February, rising across the curve after falling in January. Both stock and bond markets are sitting near key resistance levels and seem to be waiting with bated breath for how the Federal Reserve (Fed) will react to a U.S. economy still showing signs of inflation.

Despite higher yields, the leading sector in the S&P 500 for all of February was Tech and it was the only sector that was positive for the month. Last week saw many sectors do well despite a continued recalibration of the Fed’s reaction function. With almost all company earnings reported for the quarter, investors will turn their focus to economic news and the Fed’s reaction. The first signpost down that path is this Friday with the February jobs report.

The Fed’s job may have gotten harder over the past month with strong jobs growth and hotter inflation data. Market-based inflation expectations also are shooting higher, something that the Fed will want to combat too. The Fed is not the only central bank dealing with inflation though. Global markets are concentrated on European inflation data and how the European Central Bank may have to raise rates faster than the Fed − now that the Fed has done much of its heavy lifting.

A look back

• Global stocks broke a 3-week losing streak and rose by about 2% last week. U.S. stocks led the way, but only by a slim margin. 
• Yields rose again across the curve and the 2-/10-year inversion widened. The 10-year yield broke above 4% for the first time since November before falling back down.
• ISM data showed the U.S. economy is still diverging with manufacturing in contraction while services showed a healthy expansion for the month of February. 

A look ahead

• The February jobs report will be released Friday with expectations set much lower than the 517K jobs added last month.
• Fed Chair Powell will provide testimony for a House and Senate committee potentially giving his take on recent hot inflation data and if the Fed should go higher for longer.
• Economic releases: Factory Orders, Durable Goods Orders, Wholesale Inventories, Trade Balance, Nonfarm Payrolls, and the Unemployment Rate.

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