Conway’s QuickTake: Week of May 3, 2021
Here’s What Happened Last Week:
Stocks ticked up to new record highs before falling late in the week to end the period roughly flat. Earnings were in prime focus as it was the busiest week of the Q1 reporting season. 180 constituents of the S&P 500 reported last week. Earnings are expected to increase by about a third relative to the first quarter of last year, which felt the brunt of the pandemic and related lockdowns. Rising oil prices boosted energy stocks, which was the best performing sector for the week. The communication services sector also outperformed based on strong earnings reports from Facebook and Alphabet. Technology stocks lagged, dragged down by Microsoft, which reported impressive earnings, but the stock still slumped. Health care stocks also lagged following declines in several major drug makers. Value outpaced growth while large-caps mostly beat small-caps. Year-to-date, value and small-caps each lead comparable areas of the market.
A Fed policy meeting mid-week reaffirmed that rate increases were still not on the horizon (for now). Fed chair Powell indicated that the Fed would wait “some time” before raising rates and they were still not planning for a reduction in asset purchases despite some alleged ‘froth’ in markets. Progress battling the pandemic domestically was encouraging. An anticipated fourth wave is showing signs of receding and additional restrictions, such as requirements to wear masks outdoors, are in the process of being lifted. NYC also committed to completely reopen on July 1st. Weekly jobless claims fell to a new pandemic low of 553,000. Consumer confidence rose to 121.7, the highest level since February of 2020 – before the pandemic started. U.S. GDP rose at an annualized rate of 6.4% over Q1 2021, boosted by a robust recovery from the pandemic and a sizeable increase in government spending and aid. Economists anticipate that this growth rate could rise to double digits for the second quarter as additional government spending is absorbed by the economy.
International markets generally lagged domestic counterparts in U.S. dollar terms. European shares were little changed although they remained near record levels. Japanese equity markets finished the week lower reflecting worse than expected earnings releases. The yen also weakened relative to the U.S. dollar. Chinese equities declined as the government continued its crackdown on technology firms – negatively impacting sentiment.
Some COVID-19 restrictions are starting to be lifted across Europe. Notably, France announced a 4-step process to start removing items such as nighttime curfews. The eurozone economy contracted over the first quarter but there are reasons to be more optimistic going forward. The outlook is more encouraging due to the rollout of vaccines and improved sentiment. The Bank of Japan decided to keep policy rates unchanged during April’s meetings which matched expectations. It also raised its growth outlook for 2022 on the back of stronger domestic and external demand. China’s tech sector continued to be under government scrutiny and Beijing imposed wide-ranging restrictions on the financial divisions of 13 well-known internet companies including Tencent and ByteDance.
Treasuries were down on the week as yields moved higher and inflation expectations continued to rise. The ten-year treasury yield reached 1.64% on Thursday, 0.08% higher on the week and the highest level since April 13th of this year. The spread between the 5-year and 30-year bond steepened throughout the week, with the long bond yielding 2.32%. Yields remain anchored to zero in the front end of the curve, as Thursday’s $40 billion 4-week bill auction yielded 0% for the first time since March 2020. Spreads over the week for corporate investment grade bonds was modestly tighter. Investment-grade funds recorded $5.19 billion of inflows vs $4.88 billion of inflows during the prior week. High yield funds reported $271 million of inflows vs $1.32 billion of outflows over the prior week. Municipals drifted higher with Treasuries as yields rose. Fund inflows were $1.64 billion for the week with $1.43 billion added to longer maturity funds.
Tuesday, May 4, 2021
•UK Manufacturing PMI
Thursday, May 6, 2021
•US Jobless Claims
Friday, May 7, 2021
•US Unemployment Rate
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.