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Equities Post Biggest Weekly Gain Since November 2020

U.S. equities closed higher, and in the process extended a three-day run of gains that enabled the markets to post one of their best weeks since November 2020. The Information Technology sector helped set the pace for stocks on the day and helped the tech-heavy Nasdaq to lead the major U.S. indices. The ongoing developments surrounding the war in Ukraine remained at the forefront for investors after President Biden and Chinese President Xi spoke earlier today on the matter, as well as other issues. News on the equity front was focused on earnings, as FedEx missed estimates but reaffirmed its yearly outlook, while GameStop posted an unexpected loss. In economic news, the Leading Index rebounded from last month's tumble, but existing home sales fell more than expected. Treasuries were mixed after falling this week following the Fed's mid-week monetary policy decision, and the U.S. dollar moved higher. Meanwhile, gold was lower, and crude oil prices were higher in choppy trading as prices stayed above $100 per barrel. Europe finished higher as the Biden/Xi talks were in focus, while Asia finished out a wild week mostly higher.

The Dow Jones Industrial Average advanced 274 points (0.8%) to 34,755, the S&P 500 Index gained 51 points (1.2%) to 4,463, and the Nasdaq Composite increased 279 points (2.1%) to 13,894. In very heavy volume, as a result of quadruple witching day—the simultaneous expiration of options and futures contracts on equities and indexes—8.0 billion shares of NYSE-listed stocks were traded, and 7.9 billion shares changed hands on the Nasdaq. WTI crude oil advanced $1.44 to $103.09 per barrel. Elsewhere, the gold spot price traded $13.90 lower to $1,929.30 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.2% at 98.19. Markets were higher on the week, as the DJIA was up 5.5%, the S&P 500 gained 6.2%, and the Nasdaq Composite increased 8.2%.

FedEx Corporation (FDX $219) reported adjusted fiscal Q3 earnings-per-share (EPS) of $4.59, missing the $4.65 FactSet estimate, on a 9.8% year-over-year (y/y) increase in revenues to $2.36 billion, which was nearly in line with the Street's forecast. The logistics and package-delivery company said that its strong quarterly increase was dampened by the surge of the omicron variant, as it disrupted operations and tempered customer demand in January and February. FDX reiterated its yearly guidance and slashed its forecast for capital expenditures. FDX traded lower.

GameStop Corp. (GME $91) posted an adjusted Q4 loss of $1.86 per share, while the Street was expecting a profit of $0.84 per share. Revenues rose 6.2% y/y $2.25 billion, above estimates for $2.16 billion. CEO Matt Furlong said, "It is important to stress that GameStop had become such a cyclical business and so capital starved that we have had to rebuild it from within," adding, "We've also had to change the way we assess revenue opportunities by starting to embrace, rather than run from, the new frontiers of gaming." As such, the video game retailer said plans on launching a new marketplace for nonfungible tokens, or NFTs, by the end of the second quarter. Despite the surprising loss, shares were higher.

The markets saw volatility spike this week, as investors continued to monitor geopolitical headlines with the Russia/Ukraine conflict entering its fourth week. Optimism for a diplomatic resolution has faded somewhat, as a fourth round of talks between the two sides yielded little. Meanwhile, President Biden and Chinese President Xi spoke today, with the Russia/Ukraine conflict at the top of the list of items addressed. Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her latest article, War: What is it Good For? Absolutely Nothing, how the Russian invasion of Ukraine has roiled markets and caused energy and food prices to spike at a time when inflation was already running hot. That along with the unlikeliness that the Fed and other central banks are going to pause rate hikes, provides the possibility that some countries may fall into recession this year.

Amid the volatility in the markets, you can find all our market commentary on our Market Insights page, and you can follow us on Twitter at @SchwabResearch.

Leading Index rebounds, existing home sales fall

The Conference Board's Leading Economic Index(LEI) (chart) for February rose 0.3% month-over-month (m/m), matching the Bloomberg consensus estimate, and following January's negatively-revised 0.5% decrease. The index rebounded from the first negative m/m reading since February 2021, courtesy of positive contributions from jobless claims, average workweek, the interest rate spread and ISM new orders, which more offset negative reads on consumer expectations and building permits.

Existing home sales fell 7.2% m/m in February to an annual rate of 6.0 million units, versus expectations of 6.1 million units, while January's figure was adjusted slightly lower to 6.49 million. Contract closings hit a 6-month low, as sales in all the major U.S. regions fell m/m, while y/y sales were also lower in all regions but the South. Sales of single-family homes declined m/m but were up y/y, while purchases of condominiums and co-ops were lower both m/m and from the prior year. The median existing home price was up 15.0% from a year ago to $357,300, marking the 120th straight month of y/y gains as prices grew in each region. Unsold inventory was at a 1.7-months pace at the current sales rate, up from the from the 1.6-months pace a year earlier. Existing home sales account for a large majority of the home sales market and reflect contract closings instead of signings.

National Association of Realtors Chief Economist Lawrence Yun said, "Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases," which he said is taking a heavy toll on consumers' savings. However, Yun said he expects the pace of price appreciation to slow as demand cools and as supply improves somewhat due to more home construction.

Treasuries were mixed after seeing some pressure this week following the Federal Reserve's decision to raise its target for the fed funds rate by 25 basis points (bps) to a range of 0.25% to 0.50%, its first rate hike since 2018. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her commentary, Liftoff: Fed Hikes Rates, Signals More to Come, the key message from the Fed is that it is focused on fighting inflation and is prepared to hike short-term interest rates steadily and reduce its balance sheet until it reaches its goals. We have no reason to doubt the Fed’s intentions, but see a risk that it may be over-correcting after having missed the inflation surge since late last year. Investors should be prepared for a bumpy ride.

The yield on the 2-year note ticked 1 bp higher to 1.94%, while the yield on the 10-year note was 4 bps lower at 2.15%, and the 30-year bond rate was down 6 bps at 2.42%.

Asia and Europe higher with Biden/Xi talks the focus

European equities closed higher, as investors looked to talks between President Biden and Chinese President Xi Jinping earlier today, as little progress has been made so far after a fourth day of talks between Russia and Ukraine. The two leaders discussed the war against Ukraine and competition between the two countries, according to the White House. Schwab's Chief Global Investment Strategist Jeffrey Kleintop discusses the latest financial sanctions on Russia in his article Russia-Ukraine: Hit to Russia’s Financial Systems, and what the potential implications could be in his latest commentary War in Ukraine: Recession in Europe?. Jeff suggests the odds of a recession in Europe are above average and rising but still below 50%. He notes that the European economy was strengthening and recovering in February from the omicron-driven slowdown, and real-time indicators across Europe are still showing solid demand and activity even following Russia's invasion. Jeff says that signs of stability could support European stocks, but on the other hand, a weakening picture could also mean more volatility. The euro was lower versus the U.S. dollar and the British pound was higher versus the greenback, while bond yields in both the Eurozone and U.K. fell.

The U.K. FTSE 100 Index was up 0.3%, Germany's DAX Index increased 0.2%, France's CAC-40 Index and Spain's IBEX 35 Index rose 0.1%, Italy's FTSE MIB Index gained 0.4%, and Switzerland's Swiss Market Index traded 1.0% to the upside.

Stocks in Asia were mostly higher after a rollercoaster week that saw markets in Hong Kong and China plunge, then rebound to post weekly gains. Real estate issues again led the way, after China's State Council declared that it will take strong measures to boost the economy and take actions to prevent increased risks in the property market. Focus on the war in eastern Europe remained, as Chinese President Xi and U.S. President Biden were set to speak today about the conflict. Schwab's Jeffrey Kleintop, Liz Ann Sonders, and Kathy Jones offer their commentary, Russia-Ukraine: Navigating Markets on Edge, where they recognize the immense human toll, while offering what we expect to see in coming days and weeks. In economic news in the region, Japanese core CPI rose 0.6% y/y in February, slightly above expectations, following the prior month's 0.2% increase, with the jump in energy prices the main contributor to the increase.

Japan's Nikkei 225 Index rose 0.7%, amid some weakness in the yen, Australia's S&P/ASX 200 Index increased 0.6%, and India's S&P BSE Sensex 30 Index gained 1.8%. China's Shanghai Composite Index advanced 1.1%, South Korea's Kospi Index traded 0.5% higher, and after leading the rebound in the region this week Hong Kong's Hang Seng Index shed 0.4%.

Volatility persisted, but stocks post best week of the year

Volatility in the equity markets continued this week as the markets remained at the mercy of the headlines surrounding the ongoing conflict in eastern Europe. However, the major indices rebounded from last week's losses to post solid gains, with the S&P 500 seeing its best weekly advance since November 2020. As was widely expected, the Federal Reserve kicked off its rate-hike campaign, raising the target for the fed funds rate by 25 bps to a range of 0.25% to 0.50%, while also establishing a more hawkish tilt by indicating that it sees six additional increases this year and four next year. Treasury yields on the short end of the curve spiked following the Fed's decision, but tempered in the latter part of the week, and the yield curve flattened noticeably. Equity news was in short supply and took a back seat to the developments in the Russia/Ukraine war, as well as the Fed's monetary policy meeting, with some second-tier earnings results hitting the tape. Crude oil prices moderated from last week's conflict-induced rally, but remained above $100 per barrel, and the jump in gold also cooled.

On the economic front, the February inflation picture fully developed, showing prices remain elevated across the board, and retail sales disappointed, but the prior month's figures were revised solidly higher. Meanwhile, housing data was mixed, as homebuilder sentiment cooled, building permits fell and existing home sales dropped, but housing starts came in well above expectations.

Next week's U.S. economic calendar won't be as robust, and it could face less scrutiny as the markets continue to focus on the ongoing war in eastern Europe. The first look at manufacturing and services activity for March will come courtesy of the Markit Manufacturing and Services PMIs, as well as a host of regional manufacturing activity reports out of the Chicago, Richmond and Kansas City regions. More housing data will hit the tape, with the releases of February new home sales and pending homes sales, joining the MBA Mortgage Applications Index for the week ended March 18. The first look at durable goods orders for February is also on tap, as well as initial jobless claims for the week ended March 19, and the final look at the University of Michigan Consumer Sentiment Index for this month will cap off the docket. Next week's international economic calendar will be fairly light, but a host of manufacturing and services PMIs from across the globe are on tap and likely to garner some scrutiny. Other reports due out that could draw market reactions include: Japan—Tokyo CPI. Eurozone—construction output and consumer confidence, along with German PPI and the IFO Business Climate Index. U.K.—CPI, PPI, consumer sentiment, and retail sales.

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