Conway’s QuickTake: Week of June 14, 2021


Here’s What Happened Last Week: 

U.S. Equities
Stocks appreciated being supported by the decrease in yields. The yields’ decline boosted growth stocks since the implied discount rate on future earnings was reduced. Contrary to this, value and more specifically the financials sector lagged given their focus on yield levels. Within the S&P 500 Index, real estate and health care each rose by nearly 2% leading all others. The financials sector declined by more than 2% given the decline in yield’s squeeze on bank lending margins. Materials and industrials struggled too, each falling about 2%. Reported by the WSJ here, some stocks that defined the week in markets include Moderna, Pfizer, Apple, GameStop, Campbell Soup, United Parcel Service, Boeing, and Amazon.com. Moderna and Pfizer are in the process of analyzing the use of vaccines in children under the age of 12. Campbell’s stock has cooled off as consumers returned to restaurants and the office, eating less at home. Growth beat value and small-cap stocks beat their large-cap counterparts. Last week small-cap growth rose about 3.5% while small-cap value is up a remarkable 31% for the year thus far.

Seemingly a common theme lately, inflation dominated investor sentiment. On Thursday, the Labor Department reported that core consumer prices, excluding food and energy, rose 0.7% in May, surpassing estimates near 0.4%. The trailing 12-month inflation reading tallied in at 5.0%, the highest level since 2008. Also on Thursday, a bipartisan group in the Senate reached a deal on a new infrastructure plan. Contrary to what the Biden administration had proposed, the new deal would not raise corporate taxes and includes $762 billion in new spending, far less than the $2 trillion originally suggested. Reportedly Republicans agreed to the plan, but it is unclear if the Democratic party will. Initial weekly jobless claims through June 5th reported in at 376,000 which makes it the sixth straight week of declines and the lowest number since March 2020. Encouragingly, continuing claims came in at a hair under 3.5 million people through May 22nd. The U.S. budget increased to a record $2.1 trillion over the first eight months of the fiscal year that started in October. Federal revenue reached $2.6 trillion boosted by strong receipts of individual and corporate taxes, while expenditures hit $4.7 trillion largely due to jobless benefits and COVID relief plans including small-business loans and various stimulus checks.
Source: iStock 2021

International Equities
International stocks were mixed based on the region and index referenced. Overall, developed markets marginally led emerging markets. European equities strengthened after the European Central Bank pledged to continue their lofty amount of bond purchases into at least the third quarter. Japanese and Chinese stocks both fell around half a percent as represented by their broad MSCI indices. Japan’s government relaxed the state of emergency in three prefectures after the coronavirus spread rate fell, while areas of China dealt with new surges in reported cases.

At last week’s conference, the ECB stated intentions to keep its key policy measures unchanged and would maintain its bond purchases for the foreseeable future. ECB President Christine Lagarde said inflation would accelerate this year and potentially slow its growth rate in 2022. The Japanese government upwardly revised their first quarter annualized GDP level from -5.1% to -3.9%. This eased some recession-oriented concerns as the Tokyo Olympics are around the corner. The Bank of Japan did not purchase any ETFs in May, the first full month of refrainment since 2013. The U.S.-China relationship is on the mend from a trade and investment opportunity perspective. Initially, President Biden agreed to at least review the prior administration’s bans placed on Chinese companies TikTok and WeChat.

Credit Markets
U.S. Treasury prices rallied as the 10-year yield hovered around 1.47%, cheaper by ~ 3bp on Friday. A session low was hit after the headline numbers on Thursday, with the 10-year around 1.43%. The yield curve re-steepened into Friday with the 2s10s spread wider by 4bps, and the 5s30s spread remained unchanged day-over-day. Investment grade corporate bond funds recorded $3.23 billion of inflows vs $1.72 billion of outflows during the prior week. Likewise, high yield bonds reported $642 million of outflows vs $284 million of outflows last week. Primary issuance exceeded projections as borrowers took advantage of lower rates and tighter spreads across the curve. Around $36 billion was issued vs $30-$35 billion that was projected. Municipal bond yields trailed Treasuries for the week with yields 1-11 bps lower as fears subsided over prolonged inflation. Muni funds saw their 14th consecutive week of inflows adding nearly $2.46 billion, up from $997 million the week prior.

Looking ahead…
Tuesday, June 15, 2021
     •German Consumer Price Index Figures (Inflation)
Wednesday, June 16, 2021
     •FOMC Rate Decision
     •UK Consumer Price Index Figures (Inflation)
Thursday, June 17, 2021
     •US Jobless Claims  

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, GS 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. The Hang Seng Index or HSI is a market capitalization-weighted index of the largest companies that trade on the Hong Kong Exchange. 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.