Equities kept the new year rally rolling this week with the Dow Jones Industrial Average, the Nasdaq Composite, and the S&P 500 adding between 1.6% and 2.0%. All three major U.S. indices finished Friday at record highs and now hold year-to-date gains between 4.2% and 5.2%.
The fourth quarter earnings season unofficially began on Friday with reports from financial heavyweights JPMorgan Chase (JPM) and Wells Fargo (WFC). Both companies beat earnings expectations, but came up short on revenues. PNC (PNC) and BlackRock (BLK) also reported, beating both earnings and revenue estimates.
The financial sector rallied 0.9% on Friday following the earnings releases, settling the week with a gain of 2.9%. A curve-steepening sell off in the Treasury market, which increased the 2yr-10yr spread by three basis points to 55 basis points, was a boon to the financial group.
Treasuries sold off due to several factors, including the Bank of Japan's decision to trim its daily purchases of Japanese government bonds, minutes from the European Central Bank's last policy meeting that revealed the ECB could begin preparing investors for the end of its bond-buying program early this year, and a Bloomberg report that China may slow or halt its purchases of U.S. Treasuries--however, Chinese officials later denied the report.
In addition, the core Consumer Price Index increased more than expected in December (+0.3% actual vs +0.2% Briefing.com consensus), which also contributed to the Treasury sell off.
The yield on the benchmark 10-yr Treasury note settled the week higher by seven basis points at 2.55%, but traded as high as 2.60%--its best level since March 2017. The 2-yr yield, meanwhile, advanced four basis points to 2.00%.
Outside of financials, the consumer discretionary (+3.1%), industrials (+3.2%), and energy (+3.2%) sectors had strong performances this week. Energy benefited from another increase in the price of crude oil, which climbed 4.5% to $64.21 per barrel, touching its highest level since December 2014.
In the industrial sector, transports showed particular strength, pushing the Dow Jones Transportation Average higher by 4.2%. The DJTA finished Friday at a record high.
On the downside, the lightly-weighted utilities (-2.1%), telecom services (-2.1%), and real estate (-3.5%) sectors struggled, extending their year-to-date losses; the three groups have lost between 3.4% and 5.3% since the start of 2018.
The top-weighted technology sector (+0.9%) underperformed with chipmakers showing relative weakness following a solid start to the year; the PHLX Semiconductor Index lost 0.3%. Facebook (FB) tumbled 4.5% on Friday amid concerns that changes to its news feed will cause users to spend less time on the site.
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