Conway’s QuickTake: Week of April 5, 2021
Here’s What Happened Last Week:
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.
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.
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.
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
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