Last week, U.S. Stocks and Foreign Stocks increased. Bonds were unchanged. During the last 12 months, BONDS outperformed STOCKS.
Returns through 2-26-2016
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
0.0
1.9
1.5
2.2
3.6
4.7
US Stocks-Standard & Poor’s 500
1.6
-4.3
-5.7
11.5
10.4
6.4
Foreign Stocks- MS EAFE Developed Countries
.2
-9.0
-14.9
0.9
0.8
1.5
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
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The stock market rose smartly for the second straight week, up 1.5%, continuing a steep rebound from Feb. 11 lows. Trading volumes were relatively light. Stocks fell Friday, however, failing to follow through on a strong mid-week rally and leaving some to wonder about its sustainability.
On the whole, U.S. economic figures last week were mixed to bullish, but the strongest data raised concerns the Federal Reserve will feel more pressure to raise rates faster than expected. Friday’s weakness stemmed from consumer spending and inflation data—both out the same day—that buttressed the view that the economy is healthier than bears contend. Yet accelerating inflation also brings rate hikes that much closer.
That could explain the market’s softness after the Standard & Poor’s 500 index topped the 1950 level Thursday, the previous mini-rally’s high and a point many considered a strong technical resistance level. A number of other bullish technical signs were evident. The S&P 500 index moved back above its 50-day moving average for the first time since Dec. 29. While trading activity was generally light, advancing share volume was strong compared to declining volume, with fewer stocks making new lows.
The Dow Jones Industrial Average rose nearly 250 points, or 1.5%, last week, to 16,639.97, while the S&P 500 index gained 30, or 1.6%, to 1948.05. The Nasdaq finished with a 2% gain to 4590.47
“We’ve seen a reversal of some very pessimistic sentiment that was around at the beginning of February,” says Anthony Valeri, a stock market strategist. Helping were bullish economic releases, including a 4.9% rise in January durable goods orders, the biggest in 10 months, he notes.
On Friday, the Commerce Department said January consumer spending rose 0.5%, also the biggest gain in 10 months. And personal consumption expenditures (PCE), the Fed’s preferred inflation measure, increased 1.3% in December from 12 months prior, the largest rise in the price index since October, 2014. Core PCE rose 1.7%, the most since July 2014. Fourth-quarter GDP was revised up to a 1% expansion from 0.7%, significantly above consensus of 0.4%Investors already are looking to the next Federal Open Market Committee meeting, which ends March 16, though no rate change is expected. Instead, says Valeri, the Street will be looking for hints about the pace of possible rate hikes.
Jeffrey Kleintop, chief global investment strategist at Schwab, says the economic data might not be enough to influence Fed chair Janet Yellen or change the central bank’s recent signals that rates might be temporarily on hold. “Does the FOMC tone change a little?” That’s what investors want to know, he says.
Further out, the political backdrop could bring more choppiness and a range-bound market, says Thomas Villalta, director of investment research at Covenant Multifamily Offices. “The electorate seems to want anything but a conventional party politician, whether Donald Trump or Bernie Sanders,” he says. Both represent uncertainty for investors and portend volatility, he adds.
February’s unemployment figures are due out Friday. Investors and the Fed will be examining them closely.
