Markets Finish out Volatile Week on a High Note…..

U.S. equities finished a wild week solidly higher, with all three major indexes able to claw out of negative territory on a weekly basis, as the intense volatility the has ushered in the new year continued. The gains came as sentiment remained shaky amid concerns about the implications of a potentially more aggressive Fed tightening campaign. The economic calendar was also in focus, which showed Q4 employment costs moderated from Q3’s record high pace, and the PCE Price Index rose but mostly in line with forecasts. Additionally, personal income rose at slightly smaller pace than expected and spending declined in line with expectations, while January consumer sentiment was surprisingly revised lower led by dampened expectations. Q4 earnings season hit a fevered pitch, with Dow member Apple’s record results a standout, along with fellow Dow component Visa, though Dow member Chevron missed earnings estimates, along with Mondelez, and Dow component Caterpillar warned about Q1 margin pressure from supply and labor constraints. Treasuries were higher, putting downside pressure on yields following yesterday’s severe flattening in the curve, and the U.S. dollar was little changed, pausing after a recent surge to mid-2020 highs. Crude oil prices were slightly higher, while gold was lower. Europe finished lower as the global markets brace for monetary policy tightening and digested the recent surge in the greenback, while markets in Asia were mixed.

The Dow Jones Industrial Average jumped 565 points (1.7%) to 34,725, the S&P 500 Index increased 105 points (2.4%) to 4,432, and the Nasdaq Composite rallied 418 points (3.1%) to 13,771. In heavy volume, 5.0 billion shares of NYSE-listed stocks were traded, and 4.9 billion shares changed hands on the Nasdaq. WTI crude oil nudged $0.21 higher to $86.82 per barrel. Elsewhere, the gold spot price traded $5.80 lower to $1,789.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 97.26. Markets were mostly higher for the week, as the DJIA was up 1.3%, the S&P 500 gained 0.8%, and the Nasdaq Composite was unchanged.

Personal income rose 0.3% month-over-month (m/m) in December, below the Bloomberg consensus forecast calling for it to match November’s upwardly-revised 0.5% gain. Personal spending declined 0.6%, in line with expectations, and compared to the prior month’s downwardly-adjusted 0.4% increase. The December savings rate as a percentage of disposable income was 7.9%, up from November’s upwardly-revised 7.2% rate.

The PCE Deflator increased 0.4% m/m, matching expectations, and following November’s unadjusted 0.6% rise. Compared to last year, the deflator was 5.8% higher, in line with estimates and below the prior month’s unadjusted 5.7% gain. Excluding food and energy, the PCE Core Price Index rose 0.5% m/m, matching expectations calling for it to match November’s unrevised rise. The index was 4.9% higher y/y, slightly above estimates of 4.8% and November’s unrevised 4.7% rise.

The Q4 Employment Cost Index increased 1.0% quarter-over-quarter (q/q), below estimates calling for a 1.2% rise, and south of Q3’s unadjusted record high 1.3% rise.

The January final University of Michigan Consumer Sentiment Index was unexpectedly revised lower to 67.2, from the preliminary 68.8 figure, where it was expected to remain. The downward revision came as both the expectations and current conditions portions of the survey were surprisingly adjusted downward. The overall index was lower versus December’s 70.6 level as current conditions and expectations deteriorated m/m, with the latter dropping more than the former. The 1-year inflation forecast rose to 4.9% from December’s 4.8% rate, and the 5-10 year inflation forecast also increased to 3.1% from the 2.9% level in the prior month.

Treasuries were higher, as the yield on the 2-year note declined 2 basis points (bps) to 1.17%, the yield on the 10-year note decreased 3 bps to 1.78%, while the 30-year bond rate was 1 bp lower at 2.08%.

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