Conway’s QuickTake: Week of May 24, 2021

Here’s What Happened Last Week:

U.S. Equities
Stocks ended the week with mixed results after a few volatile trading sessions. Tuesday produced the largest declines reflective of inflation worries while Thursday had a swift upswing indicative of sustained strength in the U.S. economy. Within the S&P 500 Index, real estate and health care were the largest gainers being up nearly 1%. The laggards were energy and industrials falling by 2.5% and 1.6% respectively. Growth stocks appreciated and accordingly beat value stocks which retracted last week. However, the small-cap versus large-cap dispersion was less noticeable. For the year, small-caps held a slight advantage over large-caps while value maintained its solid lead over growth. Inflation remains a central focus for investors, as some consumers worry different goods’ price increases may become commonplace before policy actions take place.

Minutes from the most recent Federal Open Market Committee’s meeting in late April indicated that some meeting attendees are looking for change. They are hoping the Fed begins tapering down the level of their monthly asset purchase program from its current $120 billion. The hope is this reduction will place less unnecessary pressure on inflation over time. Estimates for the IHS Markit Flash U.S. Composite PMI Output Index surprised strongly to the upside. The service sector component rose to a record 70.1 from last month’s 64.7 while the manufacturing sector’s survey recorded at 61.5 from a prior 60.5. These surveys clearly indicate a rebounding economy although realistic inflation concerns persist. Initial weekly jobless claims tallied in at 444,000, the lowest level since March 14, 2020. Continuing claims rose 111,000 to 3.75 million in aggregate although they report with a week’s lag. As mentioned earlier, cryptocurrencies have suffered as of late. After more than a year of astronomical growth famously backed by Elon Musk, Paul Tudor Jones, and even Snoop Dogg, the benchmark Bitcoin has fallen nearly 50% since mid-April. It began 2020 at about $7,000, peaked at $64,829 in April, and is trading around $31,281 on late Sunday. Aside from the recent volatility, the official validation of the currency and level of usage in the economy remains unknown.

Source: istock 2021

International Equities
International equities rose. Emerging markets bested developed markets as represented by their respective MSCI indices. European stocks advanced amidst the economic recovery as pandemic-induced restrictions are gradually being alleviated. Various countries have withdrawn some longstanding coronavirus precautions, but U.K. Prime Minister Boris Johnson delayed plans to remove restrictions entirely. Japanese equities finished higher after a strong April exports report and encouraging manufacturers’ business confidence levels. Chinese stocks recorded strong gains in U.S. Dollar terms. Recently, the Chinese currency, renminbi, has strengthened versus the dollar being driven by foreign investments in securities.

Eurozone business activity grew at its fastest pace in three years. The flash composite PMI for May came in at 56.9, up from 53.8 in April. In the U.K., consumer price inflation spiked to 1.5% in April from a relative 0.7% level in March. Also, after localized coronavirus restrictions were lifted, retail sales grew by 9.2% on a year-over-year basis in April. After strong double-digit growth rates during Q3 and Q4 of 2020, Japan’s economy shrunk by an annualized 5.1% in the first quarter of 2021, more than expected. The decline is mainly attributed to private consumption levels given the hardship on retail (clothing) sales and restaurants. The central bank, however, is not straying from their long-term accommodative view. To mitigate any distortions prevailing in 2020, China reported its two-year average level of retail sales growth fell to 4.3% in April, down from 6.4% in March. Additionally, new surges in coronavirus cases in several Chinese provinces stirred up concerns that COVID-19 can cause future disruptions. Columbian assets were subject to the recent credit downgrade by S&P Global Ratings to BB+. Ironically, the downgrade came just one month after S&P reiterated its BBB- rating with a negative outlook. It is likely due to the withdrawal of a tax reform bill by President Ivan Duque Marquez.

Credit Markets
U.S. Treasury yields were unchanged over last week, as the benchmark 10-year yield ended at 1.62%. This is approximately 1 bp lower than the week prior. The recent cryptocurrency volatility has arguably sparked a renewed interest in some bonds. In efforts to diversify away from equities and tactically take on less risk than crypto, bonds do well. Municipal bonds were flat to slightly positive given their strong levels of demand despite reports their pace of asset inflows has slowed. Corporate bonds were mixed as represented by their Bloomberg Barclays indices. Investment-grade issues were supported by adequate levels of primary issuance, while high-yield bonds marginally fell amidst inflation concerns.

Looking ahead…

Tuesday, May 25, 2021
•US Consumer Confidence
Thursday, May 20, 2021
•US Jobless Claims
Friday, May 21, 2021
•US Core Personal Consumption Expenditures

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, Goldman Sachs 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.