Conway’s QuickTake: Week of April 26, 2021
Here’s What Happened Last Week:
Most major stock indices ended up mostly unchanged on a week-over-week basis. The S&P 500 Index had offsetting up- and down-moves each day of the week, with some of the lightest daily trading volumes of the year so far. Within S&P 500 sectors, real estate and health care led as each sector rose around 2%. The most laggard sector was energy, which fell 1.7% as demand for oil and thus its price both fell. Represented by their respective Russell indices, small-cap stocks outperformed large-caps for the week. The growth-versus-value style dispersion was less prevalent though, with growth slightly beating value last week. Value still retains the advantage for the year though.
The White House announced a rattling statement on Thursday in which President Biden anticipates nearly doubling the long-term capital gains tax rate for anyone who earns more than $1 million per year. This proposal would increase the mentioned rate from its current level of 20% to 39.6%, and subsequently fund some measures in the soon-to-be-announced American Families Plan. After an initial steep drop following the announcement, stocks rebounded as investors realized negotiations in Congress would likely alter the proposal’s details somewhat. Weekly jobless claims retreated to the lowest level of the pandemic thus far. Through the week ended April 17th, about 547,000 new claims were filed, below last week’s level of 586,000. After previously halting the Johnson & Johnson vaccine distribution, the U.S. Food and Drug Administration lifted its restriction on Friday. Distribution now requires an informational guide to be provided to recipients alerting them of a very low risk of developing a blood clot that mostly affects adult women under 50 years of age. The National Association of Realtors declared that existing home sales fell by 3.7% in March. However, given a limited housing supply and strong demand, the median sales price reached a record high level last month.
Internationally speaking, emerging markets were slightly positive and beat out developed markets which consequently had a marginal decline in U.S. Dollar terms. These returns references are respectively represented by the MSCI Emerging Markets Index and the MSCI EAFE Index. Most European stocks were down in local currencies as investors expressed concerns the economic recovery could stall after new infection levels rose. Ironically, many companies reported strong positive earnings. Germany is debating new lockdown restrictions as safety precautions. Japan experienced their highest daily new case counts in three months, which weighed on the equity markets. Prime Minister Yoshihide Suga is considering implementing widespread lockdowns, or at a minimum in major cities and thoroughfares to further curb risks. Chinese equities were the exception and had a strong positive week. Investor sentiment was boosted by financial regulators’ new rules which focus on controlled economic growth.
In the eurozone, the IHS Markit flash composite Purchasing Managers’ Index rose to a nine-month high in April, up slightly from March. It indicated the economy is in an expansionary phase and beat out analysts’ expectations for a slight decline. Japan was devoid of much economic news last week. A solitary government report indicated consumer prices fell 0.2% year-over-year, which was not as encouraging news as was hoped. Aside from the new regulations and rules announced by the China Securities Regulatory Commission which boosted investor sentiment levels, $2.5 billion of assets flowed from Hong Kong to the mainland equity markets on Monday. This was the third-biggest daily inflow to mainland Chinese markets from Hong Kong investors.
Treasury yields were lower on the week, as the 10-year fell from 1.61% to 1.56% over five days. Gains were erased as stocks rebounded into Friday. The spread between the 5-year note and 30-year bond flattened slightly on the week by 3 bps. The U.S. Treasury sold $21.4 billion, five-year inflation-adjusted notes at a yield of -1.631%. This is proof withstanding Treasury yields are largely kept positive due to inflation levels. The corporate spread week-to-date for the USD Investment Grade All Sector OAS was wider by approximately 2 bps. Investment grade funds recorded $4.88 billion in inflows vs $6.43 billion in inflows the prior week. High Yield funds reported $1.32 million in outflows vs $132 million in outflows the prior week. Benchmark municipal yields were unchanged on the week, underperforming Treasuries, as additional supply continued to be well received. Municipal funds received $1.89 billion in inflows for the week ended 4/21 compared with $2.26 billion the week prior. Longer dated funds received $1.5 billion of inflows.
Thursday, April 29, 2021
•US Jobless Claims
•US Q1 GDP
•US Core Personal Consumption Expenditures
•Japan Industrial Production
Friday, April 30, 2021
•Euro area unemployment
•Euro area core Consumer Price Index
•Euro area Q1 GDP
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.