Stocks tumbled out of the gate thanks to a spike in interest rates. Tomorrow’s “State of the Onion” speech by President Trump should attract a crowd and last week’s Davos visit revealed that several large European companies are keen to investing in the US. While this is good it could in turn push inflation and interest rates higher while at the same time injecting volatility into US equities. The Dow closed the day off 177 at 26,439. Trading volume on the Dow was heavier. Banks fared well as higher interest rates will help expand bank margins.
This week will be busy in terms of corporate earnings as Apple, Amazon and several other giants will report numbers. Corporate earnings so far have been stronger than expected. According to FactSet, of the S&P 500 companies that have reported Q4 results, 78% have outperformed profit expectations while 77% have done better than expected in terms of revenue estimates. Meanwhile the gurus are getting a bit nervous. Goldman Sachs and some others are warning of a possible pullback in equities thanks in large part to rising interest rates as the 10 year treasury hit 2.7% today. Higher interest rates are a result of inflation expectations being ratcheted up.
Initial GDP growth estimates came in lower than expected at a reported level of 2.6%. The drop was the result of inventory and international trade numbers being down. If however you focus on domestic consumption and business activity the “core” GDP numbers shot up to 4.6% which is……as a cowboy would say…..YEEHAWWW!