Market Commentary - Week ending February 16, 2018  

US equity markets rebounded last week. Major indices were up. Our Short Term Indicator changed towards Bullish for the past week. 

• Stocks rebounded strongly from the carnage of the previous week and recorded their best weekly
  gains since early 2013. The technology-heavy NASDAQ Composite performed the best, while the energy sector lagged despite the sharp rally in oil prices. After hitting the “correction” level, defined as a drop of 10% or more from recent highs, the indexes finished the week down just 4-5% from their January highs. The Dow Jones Industrial Average retraced most of last week’s loss, rising over 1000 points, or 4.25%, to close at 25,219. The NASDAQ surged 5.3% and regained the 7,000 level ending the week at 7,239. By market cap, large caps slightly lagged their smaller cap brethren. The large cap S&P 500 index gained 4.3%, while the S&P 400 mid cap and Russell 2000 small cap indexes rose 4.4% and 4.5%, respectively.

• The International Markets as grouped by Morgan Stanley Capital International, emerging markets added a robust 6.7%, while developed markets gained 4.1%.

• As of late, analysts have repeatedly sounded the alarm over the extreme valuation in the U.S. equity markets by looking at just about every traditional market valuation metric. Interestingly enough, a recent survey of institutional investors by Bank of America Merrill Lynch found that while most institutional investors agreed the market had an “excessive valuation”, those same managers also were heavily over-weighted in equities. Analysts have coined the term “fully invested bear”, to describe this new behavior. The explanation for this paradoxical stance could perhaps be best described by the relatively new acronym of “FOMO” – “Fear Of Missing Out”.

• On the Economic front Consumer sentiment climbed to its second-highest level in 14 years, according to the University of Michigan. The University said its index rose to a reading of 99.9 in February, up 4.2 points from January, and soundly topped forecasts for a reading of 95.3. In the details, there were big gains in both the current economic conditions and the expectations sub-indexes. The tax cuts enacted by President Trump are now starting to impact workers paychecks, along with the strong jobs market, and solid economic growth has consumers confident about the future..

• On the Economic front Applications for new unemployment benefits increased slightly last week, but layoffs in the U.S. remained near a 45-year low. According to the Labor Department, initial jobless claims increased by 7,000 to 230,000, which matched economist's forecasts.

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