February 27th – Weekly Update

  • U.S. equities, as well as oil, experienced a relatively flat week as the earnings season continued to wind down. Gold finished higher after reaching a three-month high during the period. The 10-year U.S. Treasury yield closed at approximately 2.32%.
  • President Donald Trump said that a tax plan is nearly finalized, but it may not come until a health care proposal is presented next month. President Trump did not provide any specifics regarding tax reform, including the controversial border adjustment provision in the House Republican plan. Border adjustment would exempt income earned from exports, but tax imports at the (new lower) corporate rate.
  • The release of the January Federal Open Market Committee (FOMC) minutes noted that many participants expect that it might be appropriate to raise the funds rate again fairly soon, if incoming information on the labor market and inflation is in line with or stronger than forecast.
  • Not surprisingly, the biggest takeaway from the FOMC minutes seemed to be the heightened uncertainty surrounding fiscal policy. Most participants noted that some time would likely be required for the outlook to become more clear.
  • The minutes also expressed concern that the low level of implied volatility in equity markets seems inconsistent with the meaningful uncertainty surrounding policy outlook. Finally, the minutes did not contain any meaningful discussion surrounding the balance sheet. They noted that participants generally agreed that the Fed should begin discussions about the conditions that could warrant changes in the existing reinvestment policy, as well as how those changes would be implemented and communicated.
  • Existing home sales increased 3.3% in January to a 5.69M seasonally adjusted annualized rate (saar), ahead of the 5.55M consensus. This marked a new cycle high, the strongest since February 2007. December levels were also revised higher. Sales of single-family homes rose 2.6% month-to-month in January, while sales of condos and co-ops increased 8.3% after dropping over 10% in December.
  • U.S. consumer sentiment rose 5% in February on a year-to-year basis. Consumers also cited inflation expectations of 2.7% over the next twelve months, up from January’s expectation of 2.6%.

CPWM Weekly Market Monitor (2017.02.27)