Conway’s QuickTake: Week of February 8, 2021
Here’s What Happened Last Week:
Equity markets quickly recovered from losses last week helped by plans for future fiscal stimulus and vaccine optimism. Several major domestic indexes, including the S&P 500, Nasdaq Composite and the small-cap Russell 2000 reached fresh all-time highs. Within the S&P 500, energy stocks continued their recovery in 2021 in-line with rising oil prices. The communication services sector also had a strong week after several larger sized constituents released strong earnings. The healthcare sector was a notable laggard. The social media fueled short squeeze saga targeting hedge funds started to unwind (for now) with several of the most affected name shedding more than half of their value during the week. Small-caps bested large-caps and growth outpaced value. Similar trends have persisted so far this year.
Democrats continue to move forward on a proposed $1.9 trillion stimulus package despite an effort for a compromise from Senate Republicans. Early Friday morning, the Senate passed a budget resolution moving forward legislation authorizing the full $1.9 trillion President Biden had requested. Recent economic data has surprised to the upside. The ISM non-manufacturing (service) indicator rose to its highest level since February 2019 at 58.7. Expansion in the services sector has now matched the recovery in the manufacturing sector. Weekly jobless claims fell more than expected and reached their lowest level since November of 2020. Employers added 49,000 jobs in January which roughly matched expectations. This was an encouraging development following last month’s downwardly revised decline over 227,000 jobs.
Both developed and emerging non-U.S. equities rose last week although the performance gap between the two portions of the market continued to widen. Emerging market equities are among the best performing portions of the global equity market so far this year, rising over 8% in USD terms. European and Japanese shares both rose but some of the gains were eroded by USD strength. Chinese stocks also rose over the week as sentiment towards the potential regulation of mega-cap tech platforms improved. Recent IPOs indicate that investor appetite for Chinese tech stocks remains robust.
The Eurozone economy shrank by more than expected over Q4. France’s and Italy’s economy shrank the most while GDP modestly expanded in Germany and Spain. Economists expect that Q1 2021 data could be worse based on recent lock down measures. Cases in the UK have started to fall as more than 10.5 million people have received their first dose of the vaccine. PM Boris Johnson said the government would set a road map for easing restrictions later this month. The state of emergency in Japan was extended through next month as hospitals and staff remain under pressure despite a fall in the pace of new cases. Lunar New Year restrictions in China have the potential to weigh on what is usually one of the busiest travel seasons of the year. This year, the number of trips in China for the holiday will drop 60% from 2019 to about 1.2 billion, the lowest number in 18 years, according to the country’s transport ministry.
Treasuries were down on the week as the yield on the 10-year continued to climb in the new year. The curve steepened further Friday as the yield on the two year touched lows of 0.10%, last seen in March 2020, while the long end rose to 1.94%. Corporate spreads were modestly tighter for the week. The corporate issuance market has been robust with new debt exceeding the street’s expectations by 50%. Benchmark municipals were slightly weaker although they outperformed treasuries due to a steepening yield curve. Municipal fund inflows added $1.58 billion for the week ended 2/3, the 13th consecutive week.
Tuesday, February 9, 2021
•US JOLTS (Job Openings and Labor Turnover Survey) results
Wednesday, February 10, 2021
•US Consumer Price Index (CPI) and Core CPI
Thursday, February 11, 2021
•US Jobless Claims
Friday, February 12, 2021
•University of Michigan Consumer Sentiment
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.