Conway’s QuickTake: Week of March 1, 2021
Here’s What Happened Last Week:
Longer-term Treasury interest rates continued their climb which spooked equity markets and the decline of major indices. The recent decline of equities could be attributed to the fear that higher inflation and bond yields may soon lead to a gradual industry allocation shift from some stocks to bonds over time. Value outperformed growth on a relative basis although both investment styles declined. The disparity in market-caps was less noticeable although small-cap growth notably fell more than 5%. Most S&P 500 sectors fell aside from a strong increase in energy following a rise in oil prices, perhaps as investors anticipate the continued reopening of oil-dependent businesses. Consumer discretionary and technology stocks lagged after Amazon.com, Tesla, and Apple fell significantly.
Reported on Tuesday, national home prices increased more than 10% throughout 2020 compared to 2019 according to the S&P Core Logic Case-Shiller Home Price Indices. This is the strongest annual growth rate in more than six years. Similarly, lumber and copper prices reached or neared all-time highs to fund the arguably expensive homes. Weekly initial jobless claims fell dramatically to 730,000, the lowest level in three months. Encouragingly, personal incomes spiked 10% in January but could largely be due to the recently paid out coronavirus relief payments that passed through Congress in December. Democrats urged the Senate to quickly pass the most recent $1.9 trillion COVID-19 relief package. It passed through the House early Saturday and is one step closer to providing Americans more vaccinations, $1,400 direct payments to qualified individuals, and additional aid measures. The soft deadline is March 14th when some federal unemployment assistance methods will expire.
Both developed and emerging non-U.S. equities declined last week in U.S. Dollar terms represented by their MSCI indices. Emerging markets stocks plummeted more than 6% after Chinese stocks struggled. European equities fell amidst heavy volatility as concerns arose that the European Central Bank may have to act quickly to counteract the pressure hinting of increased inflation. Japanese stocks, represented by the MSCI Japan Index, fell more than 4% last week. Year-to-date the index is slightly positive, up a modest 0.5% in U.S. Dollar terms. Chinese equities plunged 7.7% for the week according to the local currency large-cap CSI 300 Index which was its worst weekly drop since October 2018. Semiconductor and electric vehicle manufacturing companies fell although previously impacted industries, such as gaming and travel, benefitted on the heels of relaxed travel and quarantine restrictions.
Europe’s harsh restrictions are easing. U.K. Prime Minister Boris Johnson presented a plan to lift restrictions in England from March 8th through June 21st. Similarly, most of the economy and social events will likely reopen by May 17th. Denmark will allow some schools to reopen on March 1st. The Tankan Index recorded a positive reading for Japanese manufacturing companies, the first instance since mid-2019. The index rose from -1 in January to 3, largely due to strong overseas demand in chemicals and manufactured foods. This sentiment level is even expected to continue rising over the next few months due to an enhanced economic environment. China is discussing implementing a change in how its citizens can invest in U.S. assets. The proposed rule change would allow them to buy overseas securities and insurance within the $50,000 exchange limit for any purpose. This differs from today’s rule which only permits these purchases for travel, study, or work but not for personal financial benefits or property ownership.
The U.S. Treasury market experienced steep losses this week as the selloff brought yields to recent highs heading into month-end. The 10-year yield remains more than 12 bps higher on the week, trading in the middle of the range of 1.37% to Thursdays high of 1.61%. Friday’s economic releases pointed to growth in U.S. personal income, with consumer spending rebounding up 2.4%. Market sentiment remains focused on inflation trends and the stimulus package out of D.C. The corporate spread week-to-date for the U.S. Dollar Investment Grade All Sector OAS was wider by 6 bps. Investment grade corporate bond funds reported $4.22 billion in inflows while high-yield funds reported $2.22 billion in outflows, a stark difference between two styles in this sector. Municipals took a bit of a breather on Friday after a 2-week slide from record levels with benchmark yields 3-28 bps higher on the week, underperforming Treasuries. Municipal funds saw just $38 million in inflows for the week after $1.8 billion the week prior, a sharp decline and a possible beginning of an outflow cycle after 16-straight weeks of inflows driving municipals to record highs.
Monday, March 1, 2021
•ISM Manufacturing Survey results
Tuesday, March 2, 2021
•China Composite PMI
Wednesday, March 3, 2021
•ISM Non-Manufacturing Survey results
Thursday, March 4, 2021
•US Jobless Claims
•Euro-area unemployment figures
Friday, March 5, 2021
•US unemployment figures
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Trading Economics, Goldman Sachs 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. 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.