Conway’s QuickTake: Week of June 7, 2021

Here’s What Happened Last Week:

U.S. Equities
The major indices ended the week mostly higher despite light levels of volume and being closed on Monday May 31st for Memorial Day. As for the S&P 500 Index sectors, energy handily outperformed all others as oil prices spiked to their highest levels in nearly two years. Real estate also did well and rose about 3%. Consumer discretionary and health care both lagged for the week. Reported by the WSJ here, some other “meme” stocks that grabbed headlines for the week include AMC Entertainment Holdings, GameStop, Zoom Video, and Tesla. The “meme” name typically refers to smaller-cap, consumer-oriented companies actively discussed on social media. Value beat growth, extending its dominance for the year so far, and small-cap stocks mostly led large-caps aside from the specific small-cap growth category which lagged large-cap growth.

The Labor Department reported employers added 559,000 jobs in May, below forecasted levels near 650,000. Nonetheless, the national unemployment rate ticked lower from 6.1% to 5.8%. Separately, the average hourly rate of earnings rose by 0.5% in May, higher than expected. Encouragingly, initial weekly jobless claims fell to its lowest level yet during the pandemic of 385,000. This level is still above the pre-pandemic average but approaching it week by week. On Tuesday, the Federal Reserve indicated a modest amount of work remains for the economy to reach their target inflation and employment levels. However, it stressed inflation is being meticulously watched to ensure it remains within their comfort level. Most cryptocurrencies fell on Friday after Elon Musk publicized a cryptic (no pun intended) tweet. He reassured investors of his latest stance against the use of bitcoin as an accepted currency by Tesla and demonstrates the influence he still has on cryptocurrencies in general. Bitcoin ended Friday down nearly 6% and is currently trading at $36,132 as of this writing. The latest infrastructure spending bill from the Biden administration is still being negotiated in Congress. Friday saw the GOP increase their spending proposal to the bill by $50 billion. The Republicans offer is still far below what Democrats proposed near $1 trillion, but Biden said he will continue to negotiate with all participants to reach a compromise.

Source: iStock 2021

International Equities
International stocks performed well and were open for the full five trading days. Emerging markets beat developed markets in U.S. Dollar terms. European equities benefitted from a general optimistic outlook for a continued economic recovery although the several large stimulus packages reignited some inflation concerns. Japanese stocks were mixed depending on the index referenced. The local government extended the covid-induced state of emergency in Tokyo, Osaka, and a few other locales to at least June 20th. Chinese stocks were also mixed based on the different indices referred to. As a boost to markets, nearly $8.7 billion of Chinese stocks were purchased by foreign investors in May, the highest month of the year so far.

Eurozone inflation rose by 0.4% to a 2.0% level in May. A large component of the increase was higher energy costs. Core inflation, excluding food and energy, slightly rose from 0.8% to 0.9%. Household spending levels in Japan spiked 13.0% on a year-over-year basis in April, more than the comparable 6.2% jump in March. The increase was the largest on record since January 2001. The Organization for Economic Cooperation and Development adjusted its Japanese growth projections. It expects GDP to expand by 2.6% in 2021 and by 2.0% in 2022. It also expects Japan to reach its pre-pandemic levels of GDP per capita by the third quarter of 2021. The Chinese private economic activity barometer, Caixin manufacturing PMI, rose to 52.0. That is its highest reading this year and contrasts the official manufacturing PMI which slightly ticked lower to 51.0. Some economists do not think the recent announcement allowing Chinese households a third offspring will alter the demographic situation. A similar relaxation took place in 2016 allowing households to have a second child but was followed by a relatively muted increase in new births.

Credit Markets
The benchmark U.S. Treasury 10-year yield level marginally fell a few basis points throughout the week to end at 1.56%. The largest daily decline came on Friday after May’s employment report was released. Municipal bonds outperformed Treasuries. Recently released data from Thomson Reuters Lipper indicated municipals attracted around $1 billion of inflows last week. Much of these inflows were concentrated in the high-yield flavor. Corporate bonds were subject to very light trading volumes. Levels of new issuance were on par with expectations, while outflow levels decreased amidst ongoing talks of the new government-proposed infrastructure bill. The Bloomberg Barclays High Yield Corporate Index rose 0.3%.

Looking ahead…

Tuesday, June 8, 2021
•China Consumer Price Index Figures (Inflation)
Thursday, June 10, 2021
•US Jobless Claims
•US Consumer Price Index Figures (Inflation)
Friday, June 11, 2021
•University of Michigan Consumer Sentiment

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.