Conway’s QuickTake: Week of April 12, 2021

Here’s What Happened Last Week:
U.S. Equities
Most broad indices advanced for the week aside from the Russell 2000 Index and small-cap stocks. The S&P 500 and Dow Jones Industrial Average both reached new highs while The Nasdaq Composite rose but remained below its February peak. This is the third consecutive week the S&P 500 was up, its longest streak since October 2020. In sectors, technology led driven by strong weekly gains in Apple and Microsoft stock, which together comprise more than 40% of the sector’s composition. Consumer discretionary followed close behind since had a strong week. The clear laggard was the energy sector, falling around 4% after energy prices declined. Like a replay from last year, growth outperformed value to help shrink the year-to-date style disparity. Similarly, large-cap stocks rose and beat small-caps which fell modestly.

On Good Friday April 2nd, the stock market was closed but the Labor Department reported that 916,000 jobs were added to the economy in March which lowered the unemployment rate to 6.0%. That far surpassed estimates, and the most jobs added since August. Ironically, the initial weekly jobless claims filed through April 3rd tallied in the highest level in three weeks at 744,000. The Institute of Supply Management’s gauge of service sector activity spiked to the highest level ever recorded, which backed up the four-decade-high ISM manufacturing reading from the week prior. Employment data, new orders, and business activity all reported strong results. The Bureau of Labor Statistics reported that producer prices rose by twice the forecasted amount in March. On a year-over-year increase they rose by 4.2%, the largest in almost a decade. A week after President Biden announced the idea of a $2.25 trillion infrastructure plan, the reception was mixed. Some investors applauded the various incentives it focuses on, but other people worried about the planned tax increases and effect the plan will have on inflation. Biden has now stated he is willing to negotiate how much to increase taxes to pay for the funding.

Source: iStock 2021

International Equities
International developed markets rose for the week and beat emerging markets which fell slightly. For the year, both regions of the market are positive in the mid-single digit percentages. European stocks rose spurred by hopes of at least another fiscal stimulus round and hope that accommodative central bank policies would help fuel the global economic recovery. Japanese equities started the week strong but eventually ended flat to slightly-up in USD terms following reports of disappointing consumer spending data. Chinese equities fell about 2% in USD terms after ongoing inflation concerns and continued U.S. trade tensions weighed on investors’ sentiment. Ironically, most local companies reported positive corporate earnings but were overshadowed by the previously mentioned concerns.

England is moving to reopen various businesses next week along with international travel in May. Separately, Germany has initiated some talks to purchase the Russian-built Sputnik V vaccine. In March, U.K. construction activity grew at the fastest rate since September 2014 according to an IHS Markit Index. Also based on various surveys, it’s suggested the economy may have contracted at a slower pace in the first quarter of 2021. Japanese economic data was gloomy. Household spending fell by 6.6% in February, year-over-year, more than the forecasted 5.3% drop. This followed a similar 6.1% drop in January. Likewise, on a month-over-month reading, household spending was up 2.4%, still below expectations. China’s news was diverse. First, the country’s vaccination rate is about 5 million people per day, which puts Beijing’s goal of vaccinating 40% of the population before July in sight. The Caixin Services PMI experienced its fastest monthly growth since December following strong business expectations. Finally, the Chinese CPI reading reached a five-month high in March, sparking global inflation concerns as the economic recovery continues. 

Credit Markets
Treasury bonds were slightly up for the week after the benchmark 10-year yield fell back to 1.66%. Cheapening across the curve can be seen by the intermediate sector, while the 2s10s spread (difference between the 10- and 2-year rates) remained mostly unchanged over the past few days. The corporate spread week-to-date for the USD Investment Grade All Sector OAS was flat. Investment grade funds recorded $4.1 billion in inflows vs $3.26 billion in inflows the prior week. High yield funds reported $3.8 billion in inflows vs $1.3 billion in outflows the prior week. Municipal bond yields were 2-9 bps lower on the week, flattening the curve, as fund inflows and Treasury movements continued to provide support to already rich levels. Municipal funds received inflows of $2.1 billion through 4/7, the largest level since early February. With the new state budget deal, wealthy NYC residents will surpass California as the highest taxed in the U.S., bringing combined marginal tax rates upwards of 50%.

Looking ahead…
Tuesday, April 13, 2021
     •US Core CPI (YoY)
     •NFIB Small Business Optimism
Wednesday, April 14, 2021
     •Euro area Industrial Production
Thursday, April 15, 2021
     •US Jobless Claims
     •US Retail Sales
     •US Industrial Production
     •China GDP
Friday, April 16, 2021
     •University of Michigan Consumer Sentiment
     •Euro area core CPI  

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Goldman Sachs Market Monitor, Piton Investment Management

Data in this report is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information.  It is provided for your information and guidance and is not intended as specific advice and doesn’t not constitute an offer to sell securities. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss. The Wilshire 5000 Total Market Index measures the performance of all U.S.-headquartered equity securities with readily available price data. The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market. The Russell 2000 Index is a market-cap weighted index comprised of the smallest 2,000 companies within the Russell 3000 Index, a larger market-cap index made up of the largest 3,000 publicly traded companies in the U.S., nearly 98% of the investable U.S. stock market. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI Europe Index captures large- and mid-cap representation across 15 Developed Markets countries in Europe, covering approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe. The MSCI Emerging Markets (EM) Index captures large- and mid-cap representation across 26 Emerging Markets countries, covering approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap representation of the Japanese market, covering approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index comprising Treasury securities, Government agency bonds, mortgage backed bonds, corporate bonds, and some foreign bonds traded in the U.S. The Bloomberg Barclays Global Aggregate Ex U.S. Index measures the performance of global investment grade fixed-rate debt markets that excludes USD-denominated securities. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timelines or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.