Stocks Rally on Consumer Data and Semiconductor Report; Bonds Fall as Treasury Yields Rise Above 4%.

The Dow (+0.7%), NASDAQ (+2.3%) and S&P 500 (+1.2%) all gained last week, with the S&P 500 now reaching an all time high.  Conversely, taxable bonds fell about 1.1% and tax-free municipal bonds dropped about 0.8%.  The 10-year Treasury yield rose 0.18% to end the week at 4.14% and causing bonds to fall sharply.

Economic data from December continued to impress with strong retail sales and consumer sentiment, while consumer inflation expectations fell.  At the end of last week, Taiwan Semiconductor reported news of increasing demand on chips, which caused the semiconductor and technology sectors and artificial intelligence (AI) stocks to rally sharply.  The strong retail sales for December demonstrates that the consumer continues to spend money.  However, the coming months will be the key to see if this trend continues, or if the consumer debt and reduction in savings will begin to rear their heads. 

Quarterly corporate earnings season begins in earnest this week, and will capture the headlines.  Forecasts and expectations have been very high, so if companies don’t report favorable earnings, or if their forward-looking guidance is weaker than expected, then their stocks prices could be punished accordingly.

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