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With both the Manufacturing and Non-Manufacturing ISM reports coming in better than expected this week, there were definitely a number of bright spots in this week’s calendar of economic data.  While both reports showed strength, they also showed a pickup in the number of commodities rising in price.  The table below shows the number of commodities cited by respondents as both rising and falling in price in each of the ISM reports.  In the Manufacturing sector, respondents noted price increases in 26 commodities, which was the highest for a single month since May 2011, and up four from January. While 26 commodities were up in price, just one commodity was down in price (Scrap Metal).  In the Non-Manufacturing sector, 19 commodities were reported as being up in price (highest since July 2014), while nine were down in price (highest since February 2016).

On a combined basis, 45 commodities were up in price, which was the highest since April 2012, while just ten were down.  As shown in the chart, the three-month average of our commodities survey tends to track changes in inflation over time, and February’s increase in the number of commodities rising in price brought the moving average up to 29.7. That was the largest one-month increase since May 2016, taking the three-month moving average up to its highest point since June 2014 and confirming the uptick in y/y inflation to 2.5%- the highest level since March 2012.

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Activity in the services sector continued to accelerate during the month of February as the ISM Non-Manufacturing report rose from 56.5 up to 57.6 and ahead of expectations for a reading of 56.5.  February’s reading was the third m/m increase in the last four months, taking the index to its highest level since October 2015.  On a combined basis and accounting for each sector’s weight in the overall economy, the ISM reading for February also came in at 57.6, which was the best reading since August 2015.

The table below breaks down this month’s ISM Non Manufacturing report by each of the index’s components.  On both a m/m and a y/y basis, breadth in this month’s report was solid.  In this month’s report, all ten categories moved back into growth mode (>50) with the biggest m/m increases coming in Export Orders, Inventories, and Backlog Orders.  To the downside, Import Orders, Supplier Deliveries, and Prices all declined relative to January.  On a y/y basis, Prices Paid is up the most of any components, followed by Business Activity, New Orders.

Of all the categories included in the ISM Non Manufacturing report, Business Activity was one of the most notable.  As shown in the chart below, that component rose to its highest level since February 2011, breaking the trend of lower highs that has been in place since 2004.

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Treasury yields have been on the rise this week across the entire spectrum of the yield curve, but looking at the charts of different maturities shows a very different picture the further out on the curve you go.  Let’s start with the shorter end of the curve.  At both the three-month and two-year maturities, yields clearly broke out as expectations for a March hike become further etched into stone.

Further out on the curve at the five-year maturity, the downtrend in yields off the highs from mid-December has been broken and yields have made a slightly higher high, but the breakout looks a lot less convincing.

Looking out to ten and thirty years, you may be thinking what breakout in yields?  Not only have yields at these maturities yet to convincingly break above their downtrends from the December highs, but they still haven’t even attempted a higher high in yields.

With the short end of the curve seeing much more of a move than the long end, the yield curve shows little signs of wanting to steepen.  As of Friday morning, the spread between the yield on the ten-year and three-month US treasuries was at 184 basis points (bps), which is down 26 bps from the post-election high of 210 bps in December.  That’s quite a bit of flattening in an environment when the economy is supposed to be picking up speed, although it is still much steeper than the 142 bps level it was at prior to the election.

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With Snap, Inc. (SNAP) going public today, below is a look at how recent IPOs as a whole have been performing in their first year on the secondary market.  The Bloomberg IPO index tracks the performance of first-year IPOs, and below is a chart showing the performing of this IPO index versus the S&P 500 since the start of the current bull market back in March 2009.  As shown, while the S&P is up 254%, the IPO index is up nearly 100 percentage points less at +165%.  The IPO index has yet to even take out highs put in back in late 2014, while the S&P is well above its levels from that time period.

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While equities are currently extended by just about any measure, one indicator of breadth is showing a more neutral picture.  The 10-day advance/decline line is an indicator that takes the net number of rising stocks for a given day and adds them all together on a 10-day rolling basis.  In the chart below, readings in and above the red-zone indicate that the market is overbought in the short term, while readings in and below the green zone indicate a market that is oversold.

After recently hitting its most overbought levels since the rally following Brexit, the S&P 500’s current 10-day A/D line has seen quite a significant pullback in the last several days — moving into neutral territory.  One reason for the decline is due to breadth being relatively narrow in recent days.  Take Wednesday for example — even though the S&P 500 had its best day since the day before the election, breadth came in a +323 for the index.  Since the election, there have been three other days where the market was up less, but breadth was stronger.  Additionally, during the current bull market, on days when the S&P 500 rose 1% or more (as it did on Wednesday), the average daily A/D reading was +394.  So while the market continues to sit at or right near all-time highs, breadth has come in a bit.