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Weekly market wrap Jan. 12, 2018: Earnings expectations fuel U.S. stock gains; TSX lags
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By Fund Library News Wire  | Friday, January 12, 2018


By Mike Keerma

The major U.S. stock market gauges logged another week of gains, as investor sentiment was buoyed by gains in the financial sector and expectations of strong earnings growth for the fourth-quarter earnings season, and by growing optimism about the state of the U.S. economy following the passage of a major tax reform bill. Markets ignored an uptick in core U.S. inflation in December, and continued their record-setting ways, closing at fresh record highs on Friday. The tech-weighted Nasdaq Composite Index advanced 1.7% on the week, despite an announcement from Facebook Inc. (NASDAQ: FB) that it will favor personal over business and media newsfeeds, a move that could hit its bottom line. Fuelled by generally ebullient investor sentiment, the S&P 500 Composite Index gained 0.7% on the week. But Toronto’s S&P/TSX Composite Index lagged, closing down 0.3% on the week, despite weekly gains in both crude oil and gold.

Stock markets brushed off a 0.3% month-over-month uptick in U.S. core inflation in December, as the annualized rate of 1.8% remained below the Federal Reserve Board’s target 2%. However, the jump in the core rate contributed to the hike in U.S. Treasury note yields, with the 2-year note finishing the week at 2.001%, up 4.1 bps on the week, while logging its highest close since September 2008. In the meantime, the 10-year Treasury ended the week with a yield of 2.551%, a gain of 7.5 bps on the week.

Bond traders have been waiting to see if the Fed’s prediction that low unemployment rates would eventually feed through to a rising core inflation rate. If core inflation appears to be trending closer to the Fed’s 2% inflation target, it may give the Fed more reason to hike rates by the second quarter of the year. Hence the rise in bond yields (and the drop in prices).

Check Fund Library’s Market Activity page regularly for active updates on key market indexes and commodities.

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The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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