Telemus Weekly Market Review

February 5 – February 9, 2018

The equity market dropped sharply last week, with the S&P 500 losing 5.16%, the Dow Jones Industrial Average down 5.21%, and the Nasdaq Composite falling 5.06% in highly volatile trading. Sizable gains on Tuesday and Friday helped keep the week’s losses somewhat in check, but they couldn’t keep the major indices positive for the year.

The week’s selling was related to fears about rising interest rates, and the realization that stocks have gone too far, too fast, but it was a collective de-risking effort following the implosion of short volatility ETFs that acted as the catalyst for broad-based and indiscriminate selling activity. Coming into February the S&P 500 had soared 7.5% in the first four weeks of 2018 on top of last year’s 19.4% rally.

Technical, mechanical, and psychological forces all came together to knock back the market in an abrupt fashion.

The S&P 500 breached its 50-day simple moving average for the first time in five months. Weak-handed investors were consistently shaken out of “buy-the-dip” trades this week, sending stocks, and investor sentiment, even lower.

Congress missed a midnight spending deadline on Thursday forcing a partial government shutdown but passed a two-year budget deal a few hours later. The bill will boost spending by approximately $300 billion over the next two years, provide an additional $90 billion for disaster aid, and extend the debt ceiling until 2019.

The increase in spending prompted concerns about fiscal discipline, especially considering debt issuance was already expected to rise due to changes to the U.S. tax code. These concerns kept Treasuries in check and yields at multi-year highs.

However, outflows from the stock market ultimately edged out fiscal concerns, leaving Treasuries modestly higher and thereby Treasury yields modestly lower for the week. The benchmark 10-yr U.S. Treasury yield finished one basis point below the four-year high it touched the previous Friday at 2.83%.

Meanwhile, the CBOE Volatility Index (VIX), often referred to as the “investor fear gauge,” ended the week 66.7% higher at 28.86.

All 11 S&P 500 sectors finished the week in the red, with losses ranging between 2.8% for utilities and 8.5% for energy. In general, cyclical sectors including the heavily-weighted financial sector underperformed their countercyclical peers. The energy sector struggled as West Texas Intermediate crude futures dropped 9.5% for the week to $59.23 per barrel–their lowest level since the end of December.

Overseas, equity markets in Asia and Europe finished the week solidly lower, following Wall Street’s lead. China’s Shanghai Composite and Hong Kong’s Hang Seng led the retreat in Asia, dropping 9.5% apiece, while Germany’s DAX and France’s CAC set the pace in Europe with losses of 5.3% apiece.

The market still anticipates that the next rate hike will occur at the March FOMC meeting as Fed officials minimized the week’s sell off, continuing to emphasize a path of gradual rate increases. The CME FedWatch Tool places the chances of a March rate hike at 71.9%, virtually unchanged from the prior week’s 76.1%.

February 12 – February 16 Economic Calendar

  • Monday
  • Treasury Budget
    2:00 PM ET
  • Loretta Mester Speaks
    8:00 AM ET

  • Redbook
    8:55 AM ET

  • Atlanta Fed Business Inflation Expectations
    10:00 AM ET
  • Business Inventories
    10:00 AM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • Housing Market Index
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Tuesday
  • NFIB Small Business Optimism Index
    6:00 AM ET

  • Loretta Mester Speaks
    8:00 AM ET

  • Redbook
    8:55 AM ET

  • Atlanta Fed Business Inflation Expectations
    10:00 AM ET
  • Business Inventories
    10:00 AM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • Housing Market Index
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Wednesday
  • MBA Mortgage Applications
    7:00 AM ET
  • Consumer Price Index
    8:30 AM ET
  • Retail Sales
    8:30 AM ET
  • Atlanta Fed Business Inflation Expectations
    10:00 AM ET
  • Business Inventories
    10:00 AM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • Housing Market Index
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Thursday
  • Durable Goods Orders

  • Jobless Claims
    8:30 AM ET

  • Philadelphia Fed Business Outlook Survey
    8:30 AM ET
  • PPI-FD
    8:30 AM ET
  • Empire State Mfg Survey
    8:30 AM ET
  • Industrial Production
    9:15 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • Housing Market Index
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Friday
  • Housing Starts
    8:30 AM ET

  • Import and Export Prices
    8:30 AM ET

  • Consumer Sentiment
    10:00 AM ET

  • E-Commerce Retail Sales
    10:00 AM ET
  • Baker-Hughes Rig Count
    1:00 PM ET
  • EIA Petroleum Status Report
    10:30 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • Housing Market Index
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • Treasury International Capital
    4:00 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only.  It is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.