Conway’s QuickTake: Week of April 5, 2021


Here’s What Happened Last Week:

U.S. Equities
The S&P 500 Index crossed the symbolic 4,000 threshold for the first time in history last week. U.S. markets were buoyed by a recovery in technology stocks and infrastructure spending optimism. A recovery in technology and growth-oriented stocks helped the Nasdaq outperform the S&P 500 Index for the week. This also contributed to strength in the communication services sector. More defensive sectors generally lagged. Consumer staples and healthcare were amongst the worst performers. The Russell 1000 Growth Index widely outperformed the Russell 1000 Value Index for the first time since January. Small-caps generally outperformed large-caps as the market sentiment shifted to risk-on. The collapse of Bill Hwang’s family office, Archegos Capital, continued to have ripple effects on select areas of the market. Mainly, several fund holdings experienced outsized volatility as positions were fully unwound early in the week.

Sentiment was boosted by President Biden’s extensive infrastructure plan unveiled last week. The $2.25 trillion package would increase spending on internet and transportation among other areas. The Biden administration is also expected to unveil another spending package focused on healthcare, education, and childcare later this month. Tax hikes are expected to partially fund recent increases in government spending. Initially, the corporate tax rate is expected to rise to 28%, up from the recently reduced 21% under the Trump administration. Personal tax increases for high earners also remain on the table to cover the cost of future spending packages. Last week’s economic data was largely positive. Consumer confidence had its largest gain in 18 years. Manufacturing also strongly surprised to the upside and the respective ISM Index registered its highest level since the early 80s at 64.7. Labor market data was more mixed as weekly jobless claims increased relative to a week prior. Despite the underwhelming reading, markets seemed somewhat calmed as it alleviated fears of the economy overheating.

Source: iStock 2021

International Equities
Developed and emerging non-U.S. markets both rose over the week, although emerging markets outperformed by a sizeable margin. European equities rose to near-record highs based on renewed optimism about the economic recovery despite a temporary surge in cases. Japanese equities were little changed reflecting some disappointing economic results and heightened coronavirus cases. Rising U.S. treasury yields contributed to the U.S. dollar/yen ratio reaching a 12-month high (indicating yen weakness). Chinese equities had a strong week following news of an additional tax reduction to support the economic recovery.

Despite optimistic forward economic outlooks, many European nations continue to grapple with surges in coronavirus cases and subsequent lockdown measures as the race to vaccinate their populations continues. ECB messaging that the end of coronavirus relief economic aid is not set in stone pushed bond yields lower. Eurozone inflation rose to 1.3% in March, up from 0.9% a month earlier. Higher energy and non-processed food price increases contributed to the rise. Japanese retail sales and industrial production disappointed estimates. Unemployment came in at a seasonally adjusted 2.9% for February, which was unchanged from January. China remains well ahead of much of the western world in its coronavirus containment effort which continues to support economic data.

Credit Markets
Despite falling back towards the end of the week, 10-year U.S. Treasury yields finished higher at 1.72%. Investment-grade corporate spreads were modestly narrower on the week as buying across maturities remained strong while issuance was light. High yield spreads reached new lows as the market priced in the positive economic impact of the Biden administration’s infrastructure plan. Positive inflows were also supportive. Municipals outperformed treasuries for the week, boosted by muted supply and strong inflows. Municipal bond fund inflows reached a record high so far this year.

Looking ahead…

Monday, April 5, 2021
•US Markit Composite PMI
•ISM Non-Manufacturing PMI and Services PMI
Tuesday, April 6, 2021
•Euro area unemployment rate
•US Consumer Inflation Expectations
•US JOLTs Job Openings
Wednesday, April 7, 2021
•US Jobless Claims
•US ISM Manufacturing Survey
•UK Manufacturing PMI
Thursday, April 8, 2021
•US FOMC Minutes

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Trading Economics, Goldman Sachs Weekly Market Monitor

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.