Conway’s QuickTake: Week of June 28, 2021
Here’s What Happened Last Week:
U.S. stocks recovered last week’s lost ground and the S&P 500 Index and tech-heavy NASDAQ Composite reached new highs. Many major indexes had their best weekly gain since early April. Energy stocks within the S&P 500 Index rose nearly 7% as oil prices reached their highest level since late 2018. Yield-oriented, defensive sectors, such as real estate and utilities lagged amongst higher rates and a risk-on sentiment. Value and small-cap stocks generally bested growth and large-cap stocks, respectively. While value and small-cap stocks remain ahead of respective counterparts year-to-date, the gap has narrowed in recent months. After lagging over 2020, small-cap value (as represented by the Russell 2000 Index) is the best performing portion of the market so far this year – rising nearly 30%.
Inflation fears have moderated somewhat, helping support markets. Some signs indicated that supply chain pressures that contributed to spikes in commodities were easing. Lumber prices continued to fall drastically. Bloomberg recently reported that wholesale used car market prices have likely peaked and that retail vehicle prices might soon follow. Late last week, President Biden announced that a bipartisan group of 10 Senators had agreed on a plan for roughly $1 trillion in infrastructure spending over the next five years. The bill has yet to be drafted and many expect it to face resistance from both ends of the political spectrum. Most economic data released last week was encouraging, demonstrating healthy growth without stoking fears about the economy overheating. IHS Markit’s gauge of June manufacturing activity beat expectations and climbed to a record 62.6. The IHS services gauge came in lower than anticipated (64.8) off another all-time high of 70.4 in May.
Developed and emerging non-U.S. equity markets were positive but generally lagged U.S. counterparts. European shares rose over a volatile trading week. Reaffirmation of ultra-loose monetary policy seemed to support local equity markets. Japanese equities had a tumultuous week but ended the period slightly higher. The Japanese yen fell to its lowest level relative to the U.S. Dollar since March 2020. Chinese equities had strong gains over the period, ending a three-week losing streak. Equity markets rallied after the People’s Bank of China injected liquidity into the financial system for the first time since February.
The number of coronavirus cases in the UK rose to about 16,000, the highest level since February. The rise in cases is likely a result of the highly transmissible delta variant. This caused the EU to consider additional travel restrictions for UK visitors. European Central Bank president, Christine Lagarde, recently stated that it is important to not withdraw monetary and fiscal support too early, although she acknowledged that the economic backdrop is improving. Eurozone economic data showed increased output in June. The purchasing managers index rose to 59.1 in June, the fastest pace of growth in 15 years. Japan recently reached its vaccination target of administering 1 million coronavirus vaccine doses per day, slightly ahead of their target. The government aims to finish vaccinating all eligible people who wish to receive the vaccine by November. China is distributing as many as 20 million vaccine doses on peak days. That said, China is still realizing select outbreaks which can continue to have important economic implications.
The treasury curve was steeper last week. The 10-year yield is trading around 1.52%, above last week’s close of 1.44%. Investment-grade corporate spreads were little changed last week. Investment-grade funds recorded $233.4 million of inflows vs. $3.99 billion of inflows the prior week. This was the smallest pace of inflows in 7 months for investment-grade funds. High yield funds reported $188.9 million of inflows vs. $2.23 billion of outflows last week. Municipal yields steepened modestly on the week lagging treasuries. Municipal funds saw their 16th consecutive week of inflows adding $1.9 billion. Net negative supply continues to grow heading into peak redemption season.
Thursday, July 1, 2021
•US Jobless Claims
•US ISM Manufacturing
Friday, July 2, 2021
•US Unemployment Figures
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.