Conway’s QuickTake: Week of June 21, 2021
Here’s What Happened Last Week:
U.S. equity markets were dragged lower after surprisingly hawkish statements from the recent Fed policy meeting indicated that rate hikes could come sooner than many expected. Cyclical sectors most reliant on economic growth were hit the hardest. This included financials, energy, and materials. Growth-oriented sectors proved the most resilient. The top-performing S&P 500 sectors for the week included IT and consumer discretionary. Notably, IT was the only positive sector for the week, but just barely – rising 0.1%. Large-caps generally bested small-caps as investors fled to quality. Despite larger losses last week, value and small-cap stocks continue to be ahead of large-cap and growth stocks for the full year, respectively, although the gap is narrowing.
Fed policymakers surprised markets when word spread that potential rate hikes could be sooner than expected in 2023. Fed Chair Powell noted that the economic recovery was progressing more quickly than expected and that they have begun to discuss slowing the pace of bond purchases. Notes released after the meeting showed the Fed now expects two rate hikes by the end of 2023. The moved-up timeline reflects potential concerns about high inflation, although messaging continues to stress that it is likely transitory. The real GDP growth estimate for 2021 moved up to 7%, while the unemployment rate for next year remains targeted at around 4.5%. While these numbers are encouraging, they also reinforce the potential decision to hike rates sooner than expected.
Developed and emerging non-U.S. markets also fell last week in line with U.S. equities. European stocks declined following the Fed’s hawkish announcement, although the ECB’s recent messaging continues to be more dovish. Japanese equities had mixed returns for the week amidst a weakening yen, generally ahead of other major developed markets. Chinese equities had their third consecutive weekly loss as capital outflows increased and mutual funds faced greater redemption requests.
The U.K. delayed its reopening for another month after a concerning number of new coronavirus infections likely caused by the new ‘Delta’ variant arose. On the other hand, France ended a nighttime curfew and began phasing out mask requirements in public places. The Japanese government also eased some coronavirus restrictions ahead of the impending summer Olympics. Specifically, the state of emergency will be lifted in certain districts as infections are declining as the vaccine rollout has accelerated. The opposition party in Japan submitted a vote of no confidence against PM Suga in response to his decision to push ahead with the Olympics. Opponents believe Suga and his government haven’t been effective in protecting the Japanese people against the pandemic. Chinese economic data has recently come in slightly lower than expected leading some to believe that the country’s growth momentum from the recovery may have peaked.
The 10-year treasury yield moved lower Friday to 1.44% after a volatile week. The 30-year treasury yield fell nearly 0.09% for the first time since February, with the spread between the 5-year and 30-year flatter at 1.19%. Corporate investment-grade spreads were modestly (0.02%) tighter for the week. The Barclays U.S. Aggregate Corporate Spread Index reached its lowest level since 2005. Corporate high yield spreads are also near historic lows. Tax-exempt yields moved slightly higher with treasuries after the Federal Open Market Committee (FOMC) meeting’s hawkish tone indicated higher rates may come sooner than expected. Municipal bond funds saw continued inflows for the 15th consecutive week adding another $1.85 billion. Muni supply this week is expected to be approximately $9.1 billion. Notable deals include the State of Tennessee for $657.7 million, Massachusetts Educational Finance Authority for $381.7 million, and the City of Philadelphia Water & Wastewater for $359.5 million.
Wednesday, June 23, 2021
•US Manufacturing PMI
•US Services PMI
Thursday, June 24, 2021
•US Jobless Claims
•Euro area Manufacturing PMI
•Euro area Services PMI
Friday, June 25, 2021
•US Personal Consumption Expenditures (Inflation)
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.