Economic Update 1-11-2021
- Economic data for the week included stronger reports for ISM manufacturing and services, while the employment situation for December weakened more than expected.
- Equity markets rose several percent globally, with the U.K. and emerging markets leading other regions, with hopes for larger U.S. stimulus upon the victory of both Georgia Democratic Senate candidates, and in spite of a riot at the U.S. Capitol. Bond prices fell back as interest rates ticked higher based on additional stimulus expectations. Commodities rose, with continued recovery gains in crude oil—which rose back above $50/barrel.
U.S. stocks began 2021 on a down note Monday, with rising Covid cases nationwide and uncertainty over Georgia’s dual-runoff Senate elections the following day beginning to concern investors, as polls showed far tighter races than expected. In a strange twist of fate, market results turned positive Wednesday despite the narrow Democratic victory (as discussed above), as well as when the chaos at the U.S. Capitol ended with a formal electoral certification of Joe Biden as President. As is often the case with domestic civil strife, markets were little affected directly. Later in the week, a disappointing jobs report added hope for another fiscal aid package led by Democrats.
By sector, cyclical energy and materials led with gains well over 5% each, followed by consumer discretionary stocks and financials. Defensive utilities and consumer staples lagged with minor declines. Small caps outperformed large caps by several percent, in keeping with the strength in cyclical assets. However, real estate also lost ground as interest rates ticked higher.
Foreign stocks outperformed U.S. stocks last week, led by the U.K. and emerging markets. Strong industrial results in Germany, as well as relief sentiment in the U.K. post-Brexit appeared to be primary catalysts for continued gains. As in the last few weeks, hopes for an improved post-Covid environment as vaccine distribution ramps up appears to be driving investor moods, as opposed to any differentiating factors regionally.
U.S. bonds fell back sharply last week, up to a percent or more in total return as interest rates ticked higher. However, treasuries outperformed investment-grade corporates. The bellwether 10-year treasury note yield crept back over the 1.0% level as the Georgia election results raised expectations for more government spending (as noted earlier). Floating rate bank loans ended the week as one of the few bond groups with positive returns in the U.S. Foreign bonds declined in both developed and emerging markets, as the U.S. again re-strengthened.
Commodities ticked higher along with other cyclical assets, bucking the headwind of the slightly stronger dollar. Energy led, coupled with gains in industrial metals, while precious metals fell back last week. The price of crude oil rose tipped over $50/barrel early in the week after Saudi Arabia unexpectedly announced a production cut of 1 mil. barrels/day for Feb. and March, offsetting slightly higher production for other nations. For the week, crude gained nearly 8% to over $52, followed by gains in natural gas.
|Period ending 1/8/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.94||-0.94|
|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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