Conway’s QuickTake: Week of May 10, 2021

Here’s What Happened Last Week:

U.S. Equities
Major indices were mixed for the week after Friday’s uptick helped to erase some losses endured days earlier. The Nasdaq Composite Index recorded its worst weekly loss in roughly two months. Laggard sectors of the S&P 500 include technology, consumer discretionary, utilities, and real estate, all modestly declining up to 1%. Widely outperforming the laggards were energy, materials, and financials which had strong returns between 4% and 9% for the week. Nearly 90% of constituent companies in the S&P 500 have reported earnings thus far. For the most part, reported earnings have beat analysts’ expectations, far surpassing levels from a year ago. For the third consecutive week, value led growth, which strengthened its year-to-date relative dominance. Large-cap stocks marginally beat small-cap stocks. The year-to-date lead that small-caps hold over large-caps, has dramatically shrunk in size.

Inflation remains a central focus for investors and policymakers alike. A widely misconstrued comment from Treasury Secretary Janet Yellen on Tuesday implied that rates may inevitably rise to prevent an economic meltdown following the various stimulus packages. She later clarified her statement was neither meant as a prediction or recommendation for the central bank to raise rates, rather simply that the Fed will promptly address an inflationary problem if one develops. The employment recovery picture took a breather as the Labor Department reported on Friday that nonfarm payrolls grew by 266,000 in April, much less than the 1 million jobs expected. Consequently, the unemployment ticked up slightly to 6.1% in April. Ironically, the average hourly wage rate jumped by 0.7%, indicative of the high level of competition for qualified workers. Contrasting this, new weekly jobless claims fell to a record-low during the pandemic of 498,000. The Institute for Supply Management’s measure of manufacturing levels in April tallied in at 60.1, below an estimate near 65. Keep in mind, readings over 50 indicate an economy is expanding.

Source: iStock 2021

International Equities
Internationally, markets were mixed as well. Developed beat out emerging markets as represented by their respective MSCI indices in U.S. Dollar terms. European stocks rose in tandem with an escalating level of confidence for an economic recovery. Many companies also reported better-than-expected earnings figures. Although Japanese markets had an abbreviated holiday-shortened week, stocks did well and rose. They were also supported by an optimistic recovery outlook despite surging new COVID-19 cases. Chinese equities declined in a Labor Day holiday-shortened week. Some pharmaceutical names suffered following the U.S. announcement it may relax vaccine-related regulations thereby increasing competition levels for vaccine manufacturers.

European nations reported encouraging pandemic-related news. First, the Netherlands and Belgium eased up on some of their lockdown restrictions. Also, the U.K. plans to offer a booster shot to people over the age of 50 in the fall, aiming to eradicate COVID-19 by Christmas. Eurozone retail sales volume grew by 2.7% in March, after a similar 4.2% jump in February. Similarly, German manufacturing order rose 3.0% in March, following a 1.2% increase in February. Japan extended a state of emergency in Tokyo and other locales until May 31st to effectively subside the current surge in cases and allow the country time to ramp up its vaccination efforts. That said, the government is keen on limiting any economic damage, and looking to allow some businesses and industries to reopen for a shorter amount of hours and added restrictions. China’s PMI Index rose to 56.3 in April, the fastest pace of growth this year as reported by Caixin. April’s exports smashed expectations and rose 32% from a year earlier while imports rose by 43%.

Credit Markets
The yield on the 10-year U.S. Treasury plunged 10 bps Friday morning following the jobs number. After hitting 1.46%, the yield came back to around 1.55% in the afternoon session, but still declined over the week. Money market rates have stayed anchored towards zero, as the front end of the curve remains impacted by excess cash and the Fed’s asset purchase program. Further out, the curve has steepened, with the spread between the 5-year and 30-year up 5 bps on the week. Corporate bond spreads for the week were flat according to the U.S. Dollar IG All Sector OAS. Investment grade funds reported $3.85 billion of inflows vs $5.19 billion of inflows the prior week. High yield funds reported $1.39 billion of outflows vs $271 million of inflows the prior week. Municipal ratios inside 10-years moved slightly higher as Treasuries outperformed munis but remain on the low end of historical averages. In the coming months, net-negative supply, specifically maturities/calls outpacing issuance, should continue to provide some technical support to municipal yields. Inflows into municipal bond funds were $585 million compared to $1.64 billion during last week.

Looking ahead…

Tuesday, May 11, 2021
Wednesday, May 12, 2021
•US Consumer Price Index
•UK Gross Domestic Product
•Euro area Industrial Production
Thursday, May 13, 2021
•US Jobless Claims
Friday, May 14, 2021
•US Industrial Production

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Goldman Sachs Market Monitor, Piton Investment Management

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.