Conway’s QuickTake: Week of May 31, 2021
Here’s What Happened Last Week:
Stocks were mostly positive over a light trading week, bringing several key indexes within 1% of all-time highs. Small-caps and growth-oriented stocks generally performed the best. This contributed to the tech-heavy Nasdaq Composite and small-cap Russell 2000 Index leading among the pack of major benchmarks. Within the S&P 500 Index, the communication services and consumer discretionary sectors were the top performers, led by strength from the technology platform companies such as Alphabet, Facebook and Amazon. Utilities and healthcare were notable laggards. Year-to-date, small-caps and value-oriented stocks remain top performers so far.
Economic data was mixed last week. On the positive end, weekly jobless claims fell more than expected to a new pandemic-era low of 406,000. Durable goods orders excluding transportation increased by 1%, also ahead of expectations. On the downside, several manufacturing gauges came in lower than expected. Democrats and Republicans continue to negotiate additional fiscal policy and most notably, a large round of infrastructure spending. Republicans unveiled a $928 billion package to counter President Biden’s prior $1.7 trillion proposal. The Fed continues to stress that inflation pressures are likely temporary in nature, although rising prices in the short-term are starting to impede consumer confidence. Pending home sales fell 4.4% in April, against consensus. Many expect the decline was a result of rising prices causing buyers to postpone purchases. According to the Case-Shiller Index for the year ended in March, average home prices in major U.S. metro areas rose 13.2%.
International equity markets rose in line with domestic markets. Emerging market equities were a standout performer, rising 2.4% over the week in USD terms. European shares rose on additional confirmations that easy money policies would remain. Japanese stocks also rose over the week following supportive sentiment for an acceleration in vaccination rollouts. Chinese stocks were strongly higher over the week also following improved vaccination data. On 6/1, the long-awaited revamp of the Hang Seng Index (HSI) will see the Hong Kong stock benchmark expand from 55 to 58 names with the addition of auto and battery maker BYD, solar panel glass maker Xinyi Solar Holdings, and real estate services company Country Garden Services.
The ECB made dovish comments last week that supported markets. They noted no evidence of sustained inflationary pressures and that a potential winding down of emergency bond purchases would be premature. European countries continued to expand their vaccination rollout. Last week, the UK widened its vaccination age to anyone over the age of 30. Amid rising infections, Japan kicked off a mass vaccination program for anyone over the age of 65 in its larger cities including Tokyo and Osaka. The fourth wave of infections brings the impending summer Olympic Games in Japan into question. China recently reached the milestone for 500 million COVID-19 vaccinations which should help bolster the future prospects of more vulnerable industries such as tourism.
The yield on the U.S Treasury 10-year note hovered around 1.6% leading into the holiday weekend. The front end of the curve remains anchored at zero, with Thursday’s four-week bill auction drawing a yield of 0.0%. The market continues to watch for the Fed’s next steps in the recovery and the impact on inflation expectations. Corporate Spreads for the week were modestly tighter (0.03%). Investment grade funds recorded $1.68 billion of inflows vs. $1.84 billion of inflows a week prior. High Yield funds reported $1.7 billion of outflows vs. $672 million in outflows the prior week. The benchmark municipal yield curve was flatter outperforming treasuries for the week as yields were several basis points lower lead by the longer end. Muni market technicals remain supportive as net negative supply persists and will likely grow as seasonal redemptions/coupon payments will pick up in June/July. Through mid-May municipal funds have received inflows of $41.7 billion, almost matching all of 2020. Visible supply over the next 30 days is $7.12 billion, the lowest since February.
Tuesday, June 1, 2021
•Markit Manufacturing PMI
•ISM Manufacturing Index
Thursday, June 3, 2021
•US Jobless Claims
•Markit Services PMI
•ISM Services Index
Friday, June 4, 2021
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, MarketWatch
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. The Hang Seng Index or HSI is a market capitalization-weighted index of the largest companies that trade on the Hong Kong Exchange. 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.