U.S. equities finished a third-straight day with solid losses, with President Trump’s announcement of tariffs on steel and aluminum imports appearing to have rattled the markets. Fed Chairman Jerome Powell’s conclusion of his first Congressional monetary policy testimony was also in focus. Treasury yields fell, even though the ISM Manufacturing Index hit the highest level since 2004 and jobless claims marked its lowest reading since 1969. Meanwhile, crude oil prices, gold and the U.S. dollar were all lower.

The Dow Jones Industrial Average (DJIA) plunged 420 points (1.7%) to 24,609, the S&P 500 Index tumbled 36 points (1.3%) to 2,678, and the NASDAQ Composite declined 92 points (1.3%) to 7,181. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.5 billion shares changed hands on the NASDAQ. WTI crude oil fell $0.65 to $60.99 per barrel and wholesale gasoline lost $0.02 to $1.90 per gallon. Elsewhere, the Bloomberg gold spot price decreased $2.63 to $1,315.68 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 90.28.

Steel and aluminum companies got a boost as President Donald Trump announced that the U.S. will impose tariffs on steel and aluminum imports to be instituted next week.

The Institute for Supply Management (ISM) Manufacturing Index for February unexpectedly rose to 60.8—the highest since May 2004—from the unrevised 59.1 in January, versus the Bloomberg forecast calling for a decline to 58.7. A reading above 50 denotes expansion. New orders and production both declined but remained above 60, while employment jumped 5.5 points to 59.7. Prices continued to grind higher, rising 1.5 points to 74.2. Growth in order backlog and new export orders both improved, with the latter rising above 60 and hitting the fastest pace of growth since April 2011. ISM said respondent comments reflected expanding business conditions.

Personal income rose 0.4% month-over-month (m/m) in January, above forecasts calling for a 0.3% gain, and matching December’s unrevised increase. Personal spending gained 0.2% in January, matching expectations, and following December’s unrevised 0.4% rise. The January savings rate as a percentage of disposable income was 3.2%. The PCE Deflator was up 0.4%, in line with expectations and versus the prior month’s unrevised 0.1% increase. Compared to last year, the deflator was 1.7% higher, matching estimates and December’s gain. Excluding food and energy, the PCE Core Index was 0.3% higher m/m, in line with expectations, and versus the prior month’s unrevised 0.2% gain. The index was 1.5% higher y/y, matching estimates and December’s increase.

Weekly initial jobless claims dropped by 10,000 to 210,000, versus expectations calling for 225,000, with the prior week’s figure being downwardly revised by 2,000 to 220,000. The four-week moving average fell by 5,000 to 220,500, while continuing claims rose by 57,000 to 1,931,000, north of estimates of 1,925,000.

Construction spending came in flat m/m in January, below projections of a 0.3% increase, and following December’s upwardly revised 0.8% gain. Residential spending was 0.2% higher m/m, while non-residential spending dipped 0.1%.

Treasuries were higher, as the yield on the 2-year note fell 5 basis points (bps) to 2.21%, the yield on the 10-year note lost 7 bps to 2.80%, and the 30-year bond rate was 4 bps lower at 3.09%.

Bond yields have slipped slightly from a recent run but the greenback continued to show signs of life following the conclusion of the first Congressional monetary policy testimony from new Fed Chairman Jerome Powell in front of the Senate Banking Committee. His prepared remarks did not differ significantly from Tuesday’s speech to the House Financial Services Committee, that fostered a hawkish reaction, but the subsequent Q&A session commanded attention as the market familiarized itself with the new Fed Chief. On Tuesday, Powell appeared to foster concerns about the pace of further Fed rate hikes this year after he said “the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.” Today he made it a point to stress early in the Q&A session that he did not believe the economy was overheating.

Schwab Center for Financial Research – Market Analysis Group

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