In what appears to be a common theme as of late, early gains for U.S. equities evaporated in the final hours of trading to finish at the lows of the day in another volatile session. Investors appeared to remain skittish in the wake of yesterday’s first monetary policy testimony from Fed Chair Jerome Powell that fostered a hawkish takeaway. News on the economic front was disappointing, as Q4 GDP was revised lower, and housing and manufacturing data fell short of forecasts. Treasury yields pared a recent run and the U.S. dollar added to a rebound, while crude oil prices were lower following a bearish oil inventory report, and gold was little changed.

The Dow Jones Industrial Average (DJIA) fell 380 points (1.5%) to 25,029, the S&P 500 Index decreased 31 points (1.1%) to 2,714, and the NASDAQ Composite declined 57 points (0.8%) to 7,273. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the NASDAQ. WTI crude oil tumbled $1.37 to $61.64 per barrel and wholesale gasoline lost $0.06 to $1.92 per gallon. Elsewhere, the Bloomberg gold spot price shed $0.27 to $1,318.09 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 90.63.

The second look (of three) at Q4 Gross Domestic Product the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 2.5%, down slightly from the first release’s 2.6% gain and matching the Bloomberg forecast. The revision reflected a slight downward adjustment to private inventory investment. Q3 GDP grew by an unrevised 3.2% rate. Personal consumption was unrevised at a 3.8% gain for Q4, above expectations of a 3.6% increase. Personal consumption grew by an unrevised 2.2% in Q3.

On inflation, the GDP Price Index was revised to a 2.3% increase, versus expectations of an unrevised 2.4% gain, while the core PCE Index, which excludes food and energy, was unadjusted at a 1.9% increase, in line with forecasts.

The GDP report is backward looking and tomorrow’s economic calendar will bring some leading indicators in the form of February auto sales, as well as the ISM Manufacturing Index, projected to dip to 58.6 this month from 59.1 in January, with a reading above 50 denoting expansion. ISM new orders—a leading indicator tracked by the Conference Board—will likely garner attention after stepping back in January from the fastest pace of growth in 14 years, while the prices paid component of the ISM’s report will also likely be on the market’s radar amid the heightened scrutiny of a potential rising inflation landscape.

Treasuries were higher, as the yield on the 2-year note ticked 1 basis point lower to 2.25%, the yield on the 10-year note lost 4 basis points to 2.87%, and the 30-year bond rate declined 5 basis points to 3.13%.

Bond yields extended a rally and the greenback added to a recent string of gains yesterday following the first Congressional monetary policy testimony from new Fed Chairman Jerome Powell, which appeared to foster a slightly more hawkish takeaway. Tomorrow, Powell will conclude his Congressional testimony, speaking to the Senate Banking Committee. His remarks are not expected to differ significantly from yesterday’s speech, but the Q&A session that follows could generate a reaction as the market familiarizes itself with the new Fed Chief.

Schwab Center for Financial Research – Market Analysis Group

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