Markets Notch Two-Day Rally…..

U.S. equities rallied for a second-straight day, with February, so far, helping to temper some of the dismal start to 2022. The markets appear to be coming to terms with elevated Fed and other global central bank tightening expectations, while awaiting tomorrow’s key January consumer price inflation report. Economic data appeared to offer some absolution, notably last Friday’s much stronger-than-expected January labor report. Earnings season continued in earnest, with Chipotle Mexican Grill and Yum! Brands rising on the heels of their quarterly results, and Yum China advancing despite reporting that the omicron variant disrupted the Chinese markets in Q4, while Lyft’s softer-than-expected active riders seemed to counter its better-than-expected results. In economic news, mortgage applications dropped amid the persistent rise in interest rates, and wholesale inventories were unexpectedly revised higher. Treasuries were mixed, and the U.S. dollar saw some pressure, while crude oil and gold prices traded to the upside. Markets in Europe and Asia finished in the plus column on the heels of yesterday’s strong U.S. finish.

The Dow Jones Industrial Average rose 305 points (0.9%) to 35,768, the S&P 500 Index increased 66 points (1.5%) to 4,587, and the Nasdaq Composite gained 296 points (2.1%) to 14,490. In heavy volume, 4.4 billion shares of NYSE-listed stocks were traded, and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.30 to $89.66 per barrel. Elsewhere, the gold spot price traded $5.60 higher to $1,833.50 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 95.55.

The MBA Mortgage Application Index dropped 8.1% last week, following the prior week’s solid increase of 12.0%. The fall came as a 7.3% decline for the Refinance Index was met with a 9.6% decrease for the Purchase Index, as the average 30-year mortgage rate continued to climb, rising 5 basis points (bps) to 3.83%.

December wholesale inventories grew 2.2% month-over-month (m/m), revised higher than the previously reported 2.1% m/m gain, where the Bloomberg forecast called for it to remain, and following November’s 1.7% increase. Sales rose 0.2%, compared to forecasts of a 1.5% gain, and after November’s upwardly-adjusted 1.7% advance.

Treasuries were mixed, as the yield on the 2-year note was up 2 bps at 1.35%, while the yield on the 10-year note dipped 1 bp to 1.94%, and the 30-year bond rate was flat at 2.25%.

Treasury yields have modestly trimmed recent gains that have come from growing expectations that the Fed may have to aggressively tighten monetary policy, with its first rate hike expected in March to combat persisting inflation pressures. The Fed has suggested multiple rate hikes are coming this year and after it begins to raise rates, it intends on commencing its balance sheet reduction campaign, known as quantitative tightening.

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