Conway’s QuickTake: Week of January 4, 2021
Here’s What Happened Last Week:
U.S. Equities and Economic Data/News
During the previous holiday-shortened week, major indices hit all-time highs again but ended mixed. The week capped off a historical year in equity markets overall following extreme volatility experienced early in the year as the pandemic unfolded, and ironically rebounded as many indices set several new high watermarks. Represented by their respective Russell indices, small-cap stocks declined and lagged the positive performance of their large-cap counterparts. Additionally, value beat growth for the week albeit the level of dispersion was less pronounced than in the past. Value ended the year with a positive return but severely lagged growth. The S&P 500 Index rose 1.5% for the week and was reflected as such in nearly every sector. In fact, all sectors but one rose led by utilities which advanced more than 2%, while energy stocks fell. There were two main catalysts that assisted the markets last week including the surprise signature of President Trump to solidify the second coronavirus relief bill worth $900 billion. Also continued optimism persisted in vaccine-related news as another mainstream vaccine, developed by AstraZeneca and Oxford University, was approved for use in the U.K. This vaccine’s approval follows the previous two vaccines developed by Pfizer/BioNTech and Moderna.
As previously announced, President Trump signed the most recent new coronavirus relief package into law on the evening of Sunday December 27th. It came as sort of a surprise to analysts since Trump publicly critiqued the “ridiculously low” $600 payments to qualified individuals. Regardless, the package passed and funds are now available to many parties affected by this hardship caused from the pandemic. As Trump previously requested, the House of Representatives quickly convened to discuss increasing the payments to individuals to $2,000 and passed legislation on Monday night. The bill then went to the Senate and was abruptly halted after Senate Majority Leader Mitch McConnell denied its progress. He said the Senate would soon focus on a few initiatives that Trump has mentioned but nothing yet has materialized. On the vaccine front, aside from the U.K.’s approval to use the AstraZeneca candidate, news was murky. The Pfizer/BioNTech and Moderna’s vaccines are being distributed to hospitals and health care facilities throughout the country, although at a slower pace than expected. Separately, the first case of a more contagious coronavirus strain initially identified in the U.K. was in Colorado on Tuesday. Additional states including California and Florida have reported cases too. Experts worry the recent high level of travel experienced during the holiday season may exacerbate the spread. The week’s economic news was expectedly dormant aside from the surprise decline in weekly unemployment claims to 787,000 through December 26th. This is the lowest level in about a month.
International Equities and Economic Data/News
International developed markets (as measured by the MSCI EAFE Index) rose 1.4% but lagged emerging markets’ increase of 3.0% in USD terms. Emerging markets were largely boosted from strong performance emanating out of China as investors widely anticipated strong growth in 2021. European equities rose following a flurry of news items. First, the U.K. extended strict restrictions to impacted areas hoping to curb new infections and hospitalization rates, and simultaneously began distributing the newly approved vaccine developed by AstraZeneca. Also, the European Union and China agreed on a new investment treaty after several years of negotiation talks. The parties have not yet ratified the treaty although the E.U. hopes it will take effect in 2022. Japanese stocks increased even though local exchanges were only open for the first three days of the week, remaining closed on New Year’s Eve and Day. For the year, the yen increased almost 5% relative to the U.S. Dollar as markets struggled to justify the premium paid for the Dollar.
After the U.K. and the European Union reached a post-Brexit trade agreement, the new treaty was overwhelmingly voted into U.K. law by Parliament. The new trade deal was also partly responsible for the euro’s highest level versus the USD in 2020, near 1.23 U.S. dollars per euro. Newly released economic data from Japan showed that Japanese industrial output was flat in November, well below the forecasted 1.2% growth rate. This is reflective of the slower-than-expected recovery rate and the recent new case surges. The government also reported that Japan’s nationwide retail sales declined in November and consumer prices fell at their fastest pace in a decade. News from China was mostly muted aside from the ongoing speculation of the Ant Group. On Thursday Bloomberg reported the People’s Bank of China is considering actions to force Ant Group to dissolve equity investments in some financial firms. This would likely hinder its influence in the financial sector.
The benchmark 10-year U.S. Treasury yield fell slightly to end the week at 0.917%. This was likely at least partially attributable to typical month-end buying activity as investors target at least a full month or year holding period. Investment-grade credit spreads tightened throughout the week despite light volume and the fact that no new deals were issued at the end of the year. Investment-grade corporate bonds advanced nearly 0.5%, in line with their high-yield cousins which took advantage of improved investor sentiment. Municipal bonds benefitted again from strong weekly inflows as the Bloomberg Barclays Municipal Index increased modestly by 0.1%.
Monday, January 4, 2021
•Euro area Markit Manufacturing PMI
•US Markit Manufacturing PMI
Tuesday, January 5, 2021
•US ISM Manufacturing Surveys
•China Caixin Services PMI
Wednesday, January 6, 2021
•US ADP Employment Change
•US FOMC Minutes
Thursday, January 7, 2021
•US Initial Jobless Claims
•Euro area Retail Sales, Inflation Rate, Consumer confidence figures
Friday, January 8, 2021
•US Unemployment Rate
•Euro area Unemployment Rate
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Trading Economics
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