Recap of US Markets

Investor sentiment improves, at least for now

A stronger-than-expected retail sales report helped to lift investor sentiment on Tuesday, pushing the Dow up nearly 200 points. The equity market managed to hold onto Tuesday's gains through the remainder of the week, though choppy action threatened the week's gain for the Russell 2000. The Russell, a measure of small cap stocks, remains the best performer relative to year-end. However, the Dow is approaching the Russell. The Nasdaq composite index managed to post its strongest weekly gain so far this year.

Bad news bears: retail sales and international trade

Tuesday's stronger-than-expected gain in retail sales was not at all friendly for bond prices. For bond traders, a robust economic recovery means the Fed will come in soon and start raising interest rates. Indications from Fed officials that they won't move quickly this year really don't matter. Wednesday's and Thursday's economic data weren’t as negative for bonds allowing a slight reversal in prices and yields.

Enter Friday morning and the international trade deficit. While the deficit was in line with expectations, it turned out that it was smaller than the Commerce Department had estimated when they compiled the preliminary GDP data. Consequently, economists are now estimating that real GDP growth will be revised up from its initial estimate of 5.8 percent. The consensus forecast is for a 6.1 percent rate of growth, up only 0.3 percentage points, yet the estimates run as high as 6.5 percent. As a result, bond prices fell once again and yields jumped.