Conway’s QuickTake: Week of February 15, 2021
|Here’s What Happened Last Week: |
U.S. Equities and Economic Data/News
The major U.S. indices rose for a second straight week and reached record highs amidst encouraging new case trends and the vaccines’ global rollout efforts. Aside from the positive vaccine news, the week also saw a surprising earnings trend continue for many companies. Some analysts believe the overall S&P earnings may have slightly grown in 2020 compared to 2019 after nearly 80% of S&P companies so far have reportedly beat estimates. If sustained, this would mark an astoundingly quick recovery compared to past economic recessions. Within the S&P 500, energy stocks were strong and rose nearly 5% due to increasing oil prices. The consumer discretionary sector lagged due to the underperformance of Amazon.com and Tesla. Small-cap stocks again beat large-caps, adding to the strong outperformance shown thus far this year. In fact, the Russell 2000 Index has risen about 16% in only six weeks. Value marginally led growth for the week, although not dramatically.
Given the stretched stock multiples and real concerns equities are overpriced, the Federal Reserve remains steadfast to keep interest rates near zero. Chairman Jerome Powell also plans to continue the Fed’s $120 billion in monthly asset purchases, ballooning the size of the Fed’s balance sheet. The Consumer Price Index for All Urban Consumers rose 0.3% in January, although the index excluding food and energy was flat. This is indicative that both commodities (albeit energy to a much higher degree) were responsible for the modest increase in the broad index. Initial weekly jobless claims fell to 793,000 reported through February 6th even though the week prior’s report was revised higher to 812,000 claims. Surprising to the downside, the University of Michigan’s consumer sentiment index tallied in at 76.2 in February, below January’s reading of 79. This is the lowest reading since August 2020. The Biden administration solidified deals to obtain another 200 million doses of the two currently approved coronavirus vaccines in the U.S. His team claims these new doses will be able to vaccinate every American adult by the end of July.
International Equities and Economic Data/News
Both developed and emerging non-U.S. equities rose last week. Continuing this year’s theme, emerging markets outperformed developed markets and lead by around 7% year-to-date. European stocks were volatile but ended the week positive despite the defensive stance taken by Germany to battle the coronavirus. Germany’s Chancellor Angela Merkel extended her country’s national lockdown until at least March 7th fearing the spread of any new strains. In a slightly different approach, the U.K. plans to reopen their economy within two weeks. Chinese stocks strongly rose by 4.3% in USD terms as represented by the MSCI China Index despite most markets being closed on Friday for the weeklong Lunar New Year holiday. Record asset flows into Hong Kong stocks propelled them up 18% so far in 2021, their best start since 1985.
The U.K. economy contracted by 9.9% in 2020, remarkably the largest annual decline since 1709 according to the Office for National Statistics. However, the Bank of England calls for a gradual recovery this year after the vaccine campaign pushes forward. Ironically, Japan is managing their monetary policy a little differently than in the U.S. Bank of Japan member Toyoaki Nakamura said it is important to be aware of the impact that large asset purchases made by the central bank may have on the economy, hinting the BoJ may be more thoughtful than normal in future asset purchases it conducts. The stance can also impact Japanese bond yields, of which the 10-year note briefly touched 0.08%, its highest level since March 2020. As China continues its impressive economic recovery, the auto industry remains one of the bright spots. Vehicle sales rose by 30% in January for the tenth straight monthly increase. Similarly, a recent poll indicated that nearly half of all Chinese consumers who plan on purchasing a car this year, will opt for the clean energy version. This interesting shift in consumer demand ties in very well with President Xi Jinping’s previously stated goal of having zero net emissions by 2060.
The curve steepened further Friday as the yield on the two-year remained locked around 0.10% and 10-year notes moved back to the high end of the range at 1.19%. The U.S. government will sell $27 billion in 20-year bonds next Wednesday, and $9 billion in 30-year TIPS. This has become important to the market as larger stimulus plans may be expected from the government. The corporate spread week-to-date for the USD Investment Grade All Sector OAS was tighter by two basis points. A modestly quiet issuance week saw $2.7 billion of inflows into investment grade bonds but $228 million of outflows in the high yield sector. Municipals outperformed Treasuries on the week, with yields slightly moving ratios to record lows. Inflows into municipal funds continued for the 14th consecutive week, adding $2.6 billion.
Tuesday, February 16, 2021
•Euro area GDP
Wednesday, February 17, 2021
•UK Consumer Price Index
Thursday, February 18, 2021
•US Jobless Claims
•Philadelphia Fed Survey
•Japan Core Consumer Price Index
Friday, February 19, 2021
•US Manufacturing PMI
•Euro area PMI
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.