Week in Review

Market Volatility Returns

A review of the week's top global economic corporate and earnings news. 


For the week ending 9 February 2018

  • Equity volatility erupts as yields, inflation rise
  • Global economy continues to hum
  • Powell takes Fed helm
  • Two-year US budget passed after brief shutdown
  • German governing coalition deal reached

Global equities declined this week as inflation fears intensified. Last week’s strong uptick in US wage inflation was compounded this week by upbeat purchasing managers’ indices and record-low jobless claims. Volatility spiked from very subdued levels, with the Chicago Board Options Exchange Volatility Index (VIX) trading around 36. Yields on US 10-year Treasuries are little changed on the week, at 2.81%, amid surprisingly little flight to quality. The price of a barrel of West Texas Intermediate crude oil fell $6.25 to $59 as US production topped 10 million barrels a day, according to US Energy Information Administration data. All pricing as of 1:20 p.m. ET Friday.


Equity markets gyrate
What began last Friday as a reaction to an uptick in wage pressure morphed into a volatility-driven selloff in US equities this week. Prices plunged late on Monday, apparently fueled by large-scale covering of short volatility positions, necessitating the sale of underlying equity positions. Several leveraged exchange-traded products were liquidated as a result of the tumult, as the unwind extended through much of the week. The VIX index, which spent much of 2017 near record lows, spiked as high as 50 on Tuesday and remained elevated late in the week. After rising last week, bond yields held largely steady, despite the equity slide. This suggests that the uptick in volatility is largely an equity-related phenomenon. Credit spreads, which remain historically tight, are back to the levels at which they opened the year, while the dollar has strengthened only a little over 2% from recent lows amid few signs of widespread contagion. Pricing as of 1:20 p.m. ET Friday.

Global growth remains solid
Global economic growth, as measured by the J.P. Morgan Global Manufacturing and Services PMI, hit a 40-month high of 54.6 in January, up from 54.3. Manufacturing held near a seven-year high while services improved at their fastest rate in three months. Forward-looking indicators like the new orders and order backlog indices continued to rise, suggesting that positive economic momentum should extend for some time to come. With the United States, eurozone and Japanese economies all operating at above-trend levels, investors are growing concerned that inflation could soon be revived, necessitating the removal of accommodative central bank policies. That prospect has proven to be a headwind for equity investors in recent sessions.

Powell sworn in as Fed chair
Jerome Powell was sworn in as chairman of the US Federal Reserve Board on Monday, replacing Janet Yellen. His introduction was a rude one, with the S&P 500 Index tumbling 4.1% on his first day in office. Powell will appear before the House Financial Services Committee to give the Fed’s semiannual monetary policy report on 28 February and will return to Capitol Hill on 1 March to testify before the Senate Banking Committee. His first Federal Open Market Committee meeting as chair is scheduled for 20–21 March, when the committee is expected to hike the federal funds rate target by 25 basis points, to 1.50–1.75%.

US Congress agrees to budget pact
It took until after a stopgap funding bill expired at midnight on 8 February, but the US House and Senate each passed a two-year budget agreement that was signed by President Donald Trump on Friday. The deal will appropriate close to an additional $300 billion for military and domestic spending over two years, along with $90 billion for disaster relief. Rapid increases in government spending and deficits have been a contributing factor to the recent backup in US Treasury yields.

Germany reaches coalition deal
After more than four months of political maneuvering, German chancellor Angela Merkel’s Christian Democratic Union and the Social Democratic Party (SPD) have hammered out a coalition agreement. The deal is subject to ratification by rank-and file members of the SPD by means of a postal vote that is expected to take up to three weeks to complete. In exchange for the SPD’s support, Merkel was forced to cede control of the powerful finance ministry to her coalition partner, in addition to the foreign and labor ministries.

Trading partners react to US policies
Canadian prime minister Justin Trudeau warned this week that Canada is willing to walk away from the NAFTA agreement if the US offers a bad deal. Canada won’t be pushed around, the premier said. Elsewhere, China has taken action in response to recent US trade measures. It filed challenges to the tariffs imposed on solar panels and washing machines with the World Trade Organization, in addition to launching an anti-dumping investigation into US sorghum exports.


As of 7 February, of the 294 constituents of the S&P 500 that have reported Q4 earnings, 77.9% have reported earnings that beat analysts’ expectations. Blended earnings are expected to increase 14.3% compared with the same quarter a year ago. Revenues are expected to advance 7.8%.





Tue, 13 Feb

United Kingdom

Consumer price index

Wed, 14 Feb


Q4 gross domestic product

Wed, 14 Feb


Q4 gross domestic product

Wed, 14 Feb

United States

Retail sales, CPI

Thu, 15 Feb


Industrial production

Fri, 16 Feb


Retail sales

Fri, 16 Feb


Housing starts



Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.

Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg New; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com. 

This content is directed at investment professionals only.



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