U.S. equities finished lower, following their foreign counterparts, as the global rally paused ahead of a robust week headlined by the Fed monetary policy decision, a ramp up in earnings season, tomorrow’s State of the Union address from President Trump, and Friday’s labor report. Treasury yields continued their rally following upbeat personal income and spending data, and the U.S. dollar bounced back from a recent tumble, while crude oil and gold prices were lower. Some M&A action dominated the equity front.

The Dow Jones Industrial Average (DJIA) fell 177 points (0.7%) to 26,439, the S&P 500 Index declined 19 points (0.7%) to 2,854, and the NASDAQ Composite lost 39 points (0.5%) to 7,467. In moderate volume, 828 million shares were traded on the NYSE and 2.1 billion shares changed hands on the NASDAQ. WTI crude oil decreased $0.58 to $65.56 per barrel and wholesale gasoline shed $0.01 to $1.92 per gallon. Elsewhere, the Bloomberg gold spot price moved $7.35 lower to $1,341.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.3% to 89.34.

Personal income rose 0.4% month-over-month (m/m) in December, above the Bloomberg forecast calling for it to match November’s unrevised 0.3% increase. Personal spending grew 0.4% last month, matching expectations, and following November’s upwardly revised 0.8% rise. The December savings rate as a percentage of disposable income was 2.4%. The PCE Deflator was up 0.1%, in line with expectations and versus the prior month’s unrevised 0.2% increase. Compared to last year, the deflator was 1.7% higher, matching estimates and compared to November’s unrevised 1.8% gain. Excluding food and energy, the PCE Core Index was 0.2% higher m/m, in line with expectations, and versus the prior month’s unrevised 0.1% gain. The index was 1.5% higher y/y, matching estimates and November’s unrevised increase.

The Dallas Fed Manufacturing Activity Index unexpectedly improved to the highest since December 2005, rising to 33.4 in January, from 29.7 in December, and versus forecasts of a decline to 25.3. A reading above zero denotes expansion.

Treasuries were mostly lower, as the yield on the 2-year note was flat at 2.12%, while the yields on the 10-year note and the 30-year bond rose 3 basis points (bps) to 2.69% and 2.95%, respectively. Treasury yields continue to rally to multi-year highs and the U.S. Dollar Index has recovered somewhat from a recent tumble to multi-year lows. Stocks remain near record highs after rising four-straight weeks to kick off 2018.

Schwab Center for Financial Research – Market Analysis Group

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