Conway’s QuickTake: Week of January 18, 2021
U.S. Equities and Economic Data/News
U.S. equities concluded the final week mixed before the upcoming presidential inauguration on Wednesday January 20th. The ongoing political situation continued to dominate the headlines. President Trump was impeached for a second time by the House of Representatives, in addition to the Democrats’ push to invoke the 25th Amendment and remove him from office before his term is up. The imminent inauguration of President-elect Joe Biden warranted thousands of National Guard troops to Washington D.C., in efforts to thwart any future violence. Within the S&P 500 Index, the energy sector led despite a large contraction on Friday. It still rose north of 3% for the week, after a drop in the supply of domestic oil inventory. Lagging all sectors was communication services after social media giants Facebook and Twitter publicly announced their bans of Donald Trump’s profile on their platforms fearing the spark of any new violence. As a reversal of trends from 2020, small-cap stocks beat large-caps and value led growth. As seen in the Periodic Returns chart above, year-to-date returns are so far contrasting returns from last year, albeit only two weeks have elapsed in 2021.
On Thursday, President-elect Biden announced the details for his new $1.9 trillion economic relief plan. It includes a $1,400 per-person direct payment to most people, $400 per week unemployment assistance, and additional funding to help testing and vaccine distribution. It’s not yet known how quickly the government could act on it and if Republicans would slow progress. The earnings season has started after JPMorgan Chase, Citigroup, and Wells Fargo all reported fourth-quarter results before the market open on Friday. All three beat earnings’ estimates but declined on the day after missing revenue estimates. Skeptics are broadly anticipating at least a decline of 10% in 2020 earnings for S&P 500 companies. Other economic data was mixed. December’s retail sales tallied in at a 0.7% drop for the third straight monthly decline. Weekly jobless claims rose to 965,000, higher than expected and the most since August. However, industrial production rose 1.6% in December, higher than forecasted. Federal Reserve Chairman Jerome Powell stated the U.S. has a long road ahead to a strong job market. He indicated the Fed expects to keep interest rates near zero for years, or at least until inflation remains above 2% for a sustained period. The next central bank meeting is scheduled for January 26th-27th and very little change is expected in their policy.
International Equities and Economic Data/News
Developed markets in Europe struggled with the ongoing restrictions and lockdowns enforced in various countries. Consequently, the MSCI EAFE Index fell about 1.4%. Emerging markets fared better as the MSCI Emerging Markets Index rose 0.3%. This was mostly due in part to the strong performance from China even though more companies were added to the list prohibiting investment in the U.S. In total that amounts to 44 companies the Trump administration alleges have ties to China’s military and have blocked U.S. investments in them.
To curtail the spread, new restrictions were applied in Italy, Switzerland, Holland, Germany, France, and the U.K. Separately, preliminary data from Germany indicated a smaller-than-expected GDP drop of 5% in 2020, likely supported by their stimulus measures throughout the year. Tokyo Shoko Research reported last year that Japanese companies with at least ¥10 billion of debt recorded the lowest number of bankruptcies since 1989. However, bankruptcies of companies with less than this this level of debt increased tremendously, mostly in dining and tourism. China has reported small clusters of new cases as well as the country’s first COVID-19 related death since May. China’s government may impose new restrictions soon if things don’t improve markedly. However, China’s 2020 GDP grew by a remarkable 2.3% year-over-year.
The week began with Treasury yields rallying to the highs since March (1.14%) but ended the week lower ~1.3bps back to approximately 1.10%. The curve flattened into Friday, with the spread between 2s and 10s at 96 bps and between the 5- and 30-year at 138 bps. The corporate spread for the USD Investment Grade All Sector OAS was tighter by 2-3 bps. Year-to-date there has been $74.5 billion in issuance vs $73.4 billion projected despite the fact last week missed the projected issuance amount by nearly $6 billion. Municipals underperformed Treasuries on the week with benchmark yields 3-5 bps higher across the curve, moving ratios slightly higher off record-lows. Municipal funds saw their 10th straight week of inflows adding $2.6 billion for the week ending 1/13, more than double the week prior. Additionally, President-elect Biden’s economic relief plan includes $350 billion for state and local governments as well as $20 billion for transit systems.
Wednesday, January 20, 2021
•UK CPI YoY
Thursday, January 21, 2021
•US Jobless Claims
•ECB Refi. Rate
Friday, January 15, 2021
•Euro area Manufacturing PMI
•UK Manufacturing 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.