Stocks Rose as Investors Digest a Flood of Economic Data…..
U.S. stocks were higher to end the day, as investors continued to wrestle with the implications of persisting inflation and a tight labor market on Fed monetary policy actions. The economic calendar came in heavy, as retail sales rose much more than anticipated in January, which may be further complicating Fed perception, homebuilder sentiment improved by the most since the summer of 2013, and business inventories continued to rise. However, industrial production came in below forecasts, mortgage applications dropped, and New York manufacturing remained in contraction territory. Q4 earnings season continued to roll on, with Airbnb topping estimates and offering upbeat guidance, and Kraft Heinz also exceeding earnings estimates, while Devon Energy missed profit projections. Treasury yields were mostly higher, and the U.S. dollar rallied, while crude oil and gold prices were lower. Asian stocks finished mostly lower, and markets in Europe traded higher as investors digested further inflation data in the region.
The Dow Jones Industrial Average increased 39 points (0.1%) to 34,128, the S&P 500 Index gained 11 points (0.3%) to 4,148, and the Nasdaq Composite advanced 110 points (0.9%) to 12,071. In moderate volume, 4.0 billion shares of NYSE-listed stocks were traded, and 4.9 billion shares also changed hands on the Nasdaq. WTI crude oil lost $0.47 to $78.59 per barrel. Elsewhere, the gold spot price declined $17.80 to $1,847.60 per ounce, and the Dollar Index rallied 0.6% to 103.88.
Retail sales come in much stronger than expected, headlining a heavy day of data…..
Advance retail sales for January were up 3.0% month-over-month (m/m), well above the Bloomberg consensus forecast of a 2.0% increase, and compared to December’s unrevised 1.1% drop. Last month’s sales ex-autos rose 2.3% m/m, compared to expectations of a 0.9% rise and as December’s figure was adjusted upward to a 0.9% decline. Sales ex-autos and gas increased 2.6% m/m, versus estimates of a 0.9% increase, and compared to December’s favorably adjusted 0.4% decline. The control group, a figure used to calculate GDP, grew 1.7% m/m, versus projections of a 1.0% advance, and following the prior month’s unrevised 0.7% downturn.
The Federal Reserve’s industrial production came in flat m/m in January, compared to estimates of a 0.5% gain, and versus December’s negatively revised 1.0% drop. Manufacturing and mining output both rose, offset by a drop in utilities production. Capacity utilization unexpectedly dipped to 78.3%, versus estimates of an increase to 79.1% from the prior month’s downwardly revised 78.4% rate. Capacity utilization is 1.3 percentage points below its long-run average.
Elsewhere on the manufacturing front, the Empire Manufacturing Index, a measure of activity in the New York region, showed the index improved more than expected but remained in contraction territory (a reading below zero) for February. The index rose to -5.8 from the -32.9 reading that was posted in January, and compared to estimates of a move to a level of -18.0.
The National Association of Home Builders (NAHB) Housing Market Index (HMI) showed homebuilder sentiment improved more than anticipated in February. The index rose to 42 from January’s unrevised 35 level, and versus the estimate calling for an improvement to 37. Despite the solid gain, this was the seventh-straight month that homebuilder sentiment was below 50—which suggests poor conditions. The depressed sentiment has come amid the backdrop of rising interest rates and elevated home prices, which have caused affordability to plunge, as well as elevated materials and labor costs.
However, the NAHB noted that with the largest monthly increase for builder sentiment since June 2013, the report indicates that incremental gains for housing affordability have the ability to price-in buyers to the market. The NAHB added that the nation continues to face a sizeable housing shortage, but the two monthly gains to start 2023 match recent cautious optimism noted by the large number of builders who have reported a better start to the year than expected last fall.
In other housing news, the MBA Mortgage Application Index declined 7.7% last week, following the prior week’s 7.4% gain. The index decreased as a 12.5% drop in the Refinance Index was accompanied by a 5.5% fall for the Purchase Index. The downturn came as the average 30-year mortgage rate rose 21 basis points (bps) to 6.39% and is up 234 bps versus a year ago.
Business inventories rose 0.3% m/m in December, matching forecasts and November’s downwardly revised advance.
Treasury rates were mostly higher, as the yield on the 2-year note was down 2 bps to 4.61%, while the yields on the 10-year note and the 30-year bond rose 4 bps to 3.80% and 3.84%, respectively.
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