Conway’s QuickTake: Week of May 3, 2021


Here’s What Happened Last Week:

U.S. Equities
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.

Source: iStock 2021

International Equities
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.

Credit Markets
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.

Looking ahead…

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

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