US markets closed higher on broad-based rally

27 Feb 2018 Evaluate

The US markets closed higher on Monday, with Dow and S&P 500 rose for a third session in a broad-based rally led by technology shares on the back of rotational buying. Investors are also bracing for a busy week that will feature several Federal Reserve speakers, including the new Fed Chairman Jerome Powell’s appearance in front of Congress. Concerns that inflation could be resurfacing and that the US central bank may have to more aggressively raise interest rates to combat such a scenario, has been the primary driver of trading in recent weeks, even eclipsing a strong earnings season. St. Louis Fed President James Bullard said his chief concern about the economic outlook is that his central-bank colleagues will become overzealous and raise interest rates too aggressively, snuffing out growth. Bullard dismissed fears of many economists that the Fed hasn’t raised interest rates sufficiently - five times since 2015 - and that higher inflation is inevitable. Bullard added that the economy is in good shape today and the recent stock market sell-off was not the result of a re-think of global growth prospects or the US outlook. Bullard said if the Fed tries to go up too much and too fast the yield curve will get a lot flatter and we’ll see that as a signal. Bullard said the economy did surprise on the upside last year, but growth will move back to 2% trend rate in the future.

On the economy front, a measure of the US economy calculated at the Chicago Federal Reserve ticked lower in January from December owed largely to a factory slowdown. The Chicago Fed’s index of national economic activity eased to a positive 0.12 last month from a downwardly revised positive 0.14 in December. The index has moved in a narrow band over recent months. October’s reading of an upwardly revised positive 0.91 was the highest for the volatile index since positive 0.94 in December 2006. The index’s less-volatile, three-month moving average fell to positive 0.12 in January from positive 0.26 in December. The Chicago Fed index is a weighted average of 85 economic indicators, designed so that zero represents trend growth and a three-month average below negative 0.70 suggests a recession has begun. Forty of the 85 individual indicators made positive contributions to the index in December, while 47 deteriorated and one was unchanged.

Meanwhile, new-home sales ran at a seasonally adjusted annual rate of 593,000 in January. Sales of newly-constructed homes tumbled unexpectedly at the start of the year. January’s selling pace was 7.8% lower than in December, although that month was revised upward. It was 1% lower than January 2017, as well. At the current sales pace, it would take 6.1 months to exhaust available supply, a sign of a well-stocked market. The median sales price in January was $323,000, about 2.4% higher than in January 2017, but almost precisely matching the full-year average in 2017.

The Dow Jones Industrial Average added 399.28 points or 1.58 percent to 25,709.27, Nasdaq was up by 84.074 points or 1.15 percent to 7,421.46 and S&P 500 gained 32.3 points or 1.18 percent to 2,779.60.

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