Global equities gave back 0.2% last week.  U.S. stocks fell 0.1%, developed international gained 0.1%, and emerging markets fell 1.4%.  Year-to-date, global equities are up 6.7% with domestics (+6.8%), developed international (+7.5%) and emerging markets (+4.6%).  Bonds fell 0.4% for the week, up 0.7% year-to-date.  The U.S. 10-yr Treasury yield rose 8 bps to 3.81%.

The S&P 500 moved higher on Monday, but failed to maintain positive momentum and ended the week 0.2% lower on higher than expected inflation data and robust growth in retail spending.  The same economic data pushed the U.S. 10-yr Treasury yield to an intraday high of 3.92% on Friday – the highest level in more than three months.  January inflation data showed year-over-year price increases slowed for the seventh straight month, but remained elevated at 6.4% and exceeded consensus expectations of 6.2%.  Shelter costs, which represent nearly one third of CPI, were by far the largest contributor to the overall increase.   U.S. retail sales rose in January by the most in nearly two years, signaling robust consumer demand which, combined with the stronger-than-expected inflation report and labor market resiliency, could mean the Fed will need to raise interest rates more than originally expected.  Retail spending rose more than forecast in January (+3.0% MoM vs. +2.0% expected).  Year-over-year, retail spending was unchanged after adjusting for inflation.  With 82% of S&P 500 constituents reported, fourth quarter earnings is tracking towards a year-over-year decline of about 4.7%, down from a 3.3% decline forecasted at year-end.

The week ahead brings minutes from the Fed’s most recent meeting due out on Wednesday (2/22) and a reading of the Fed’s preferred inflation metric (PCE) on Friday (2/24).  Consensus expectations call for January PCE growth of 5.0%, consistent with the December outcome.

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