Economic Update 12-21-2020
- Economic data for the week included declines in retail sales, industrial production, as well as in several regional manufacturing indexes. Jobless claims also ticked higher along with rising virus counts nationally.
- Global equity markets rose last week, with continued easy economic policies announced and optimism over the new Covid vaccines. Bonds were down in the U.S. as rates ticked higher, while foreign bonds benefitted positively from a weaker dollar. Commodity prices rose broadly due to expectations for a global demand recovery, especially for energy and metals.
U.S. stocks fell back last week, as rising virus counts and a lack of progress in Congress about another stimulus package weighed on sentiment. In keeping with the broader market trends, energy was the sole winner last week, helped by higher oil prices and continued hopes for stronger economic demand next year. On the downside, financials and technology suffered the worst declines. Real estate also lagged, falling nearly -3%, but led by more severe declines in malls and lodging REITs. Small cap stocks also earned positive returns, again beating large caps.
Foreign stocks declined along with U.S. stocks last week, not helped by a stronger dollar. While Japan and the emerging markets only declined slightly, U.K. and European stocks fell further. Sentiment soured by the end of the week with rising virus counts, lockdowns, and as a year-end deadline for Brexit looms—with no agreement in sight. It appears at this point, absent a major breakthrough, that the U.K. and European Union could be dealing with each other through standard/default World Trade Organization rules, similar to how several other commonwealth nations (such as Australia) trade with Europe. While not the end of the world, several regional-specific issues remain unresolved, such as fishing rights around shared border areas. Emerging market results were led by commodity producers, such as Brazil and Russia, while those seen as being helped most by an upcoming vaccine, such as India, also fared well.
U.S. bonds fared well last week, with equities selling off mildly, as virus cases remain high and economic data showed signs of flattening. Treasuries fared best, although investment-grade corporates also fared positively. Foreign bonds in developed markets gained ground, with falling rates on the order of 0.10-0.20% outweighing the impact of a stronger dollar. The upcoming FOMC meeting this coming week is expected to result in little change in policy, but perhaps more veiled calls for additional fiscal stimulus.
Commodities earned positive returns across the board last week of over a percent on net, led by agriculture and energy, with industrial and precious metals earning lesser gains. The price of crude oil rose minimally to around $46.50/barrel, while Brent crude rose above $50—triggering positive sentiment around that round number again being reached. As has been the case over the last few weeks/months, positive news about the economy or vaccine distribution has been bullish for energy and industrial metals, especially, with setbacks affecting the group negatively. Precious metals remain the year-to-date leader (up 20%), but investors have rotated away from the group in recent months as risk has been embraced.
|Period ending 12/18/2020||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.08||7.12|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.
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