Conway’s QuickTake: Week of January 11, 2021
Here’s What Happened Last Week:
U.S. Equities and Economic Data/News
U.S. stocks moved to fresh highs on stimulus hopes despite an otherwise turbulent week for domestic politics. Expectations for greater fiscal stimulus following Democrat wins in the Georgia runoff elections boosted sentiment. This notable result creates a tie between both parties in the Senate (50-50) with the tiebreaker going to Democratic VP-elect, Kamala Harris. Within the S&P 500 Index, the energy sector was among the best performers after Saudi Arabia made a surprise production cut. Financials also performed well, boosted by a rise in longer-term rates. The same rise in rates weighed on the real estate sector. Cyclical exposure was rewarded last week with value outpacing growth in most portions of the market. Small-caps also outperformed large-caps by a wide margin.
An assault on the U.S. Capitol following President Trump’s rally contesting the 2020 election results roiled the country last Wednesday. In efforts of preventing additional acts of violence, many prominent social media channels have moved to ban President Trump’s account temporarily or indefinitely. Regulators are once again clamping down on potential U.S. investments in Chinese listed entities that support their military. Despite a brief reversal, Americans will be banned Monday from investing in dozens of Chinese companies. There are also rumors that the U.S. is considering adding Alibaba and Tencent to the list, although this could change with the new administration. Recent economic data has been mixed as coronavirus cases surge across most of the nation and the vaccine rollout has been slower than expected. The ISM gauge of U.S. manufacturing and services (non-manufacturing) both surprised to the upside. Manufacturing activity rose to its highest level since 2018 while service activity hit a 3-month high. The labor market showed signs of slowing reflecting the forced closures of many business to suppress the pandemic. Nonfarm payrolls fell by 140,000 last month, the first monthly decline since April.
|International Equities and Economic Data/News|
Developed, international equities (as measured by the MSCI EAFE Index) started the year off strong, exceeding the results of the S&P 500 Index in U.S. dollar terms. The MSCI Emerging Markets Index was the strongest performer, rising nearly 5% over the week. Further progress combatting the pandemic within many Asian nations has contributed to higher growth expectations for EMs in 2021.
Stricter lockdown measures were imposed across much of Europe. The UK imposed its third national lockdown, Germany extended restrictions until the end of the month, and France is keeping bars, restaurants, and gyms closed until February. Italy is tapping more than 200 billion euros from the EU’s coronavirus relief fund to help revive its economy. Japan declared a state of emergency after new confirmed coronavirus cases spiked. The government is seeking to implement ‘limited and concentrated’ restrictions that balance public safety and stifling the economy. These measures allow schools to remain open. The World Bank reduced its global growth forecast for 2021 to 4.0% from its earlier 4.2% target. The reduction in growth expectations reflects recent challenges in containing the pandemic and massive levels of sovereign debt accumulation.
The new year started with the yield on the U.S. Treasury 10-year breaching 1.00% on Tuesday for the first time since March 2020 and continued to climb through the week. On this move, the US Treasury curve hit the steepest level since 2016. Rising rates weighed on certain fixed income markets. The U.S. Aggregate Bond Index was off by nearly 1% over the week. The corporate spreads for the USD Investment Grade All Sector OAS was next to flat. Municipal yields were modestly higher (1-4 basis points) but outperformed Treasuries on the week because of a steepening yield curve. Many Municipal/Treasury ratios are at or near record lows. Supply/demand dynamics and continued fund inflows ($1.1 billion for the week ending 1/6) remain supportive. Taxable issuance continues to be approximately a third of the new supply.
Tuesday, January 12, 2021
•NFIB Small Business Optimism
Wednesday, January 13, 2021
•US Core CPI
Thursday, January 14, 2021
•US Initial Jobless Claims
Friday, January 15, 2021
•University of Michigan Sentiment
•US Industrial Production
•UK Industrial Production
•Euro area Industrial Production
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.