Economic Update 2-16-2021
- Economic data for the week included inflation that continued to rise slightly (due to commodity prices largely), but still tempered levels on a trailing year basis. Labor metrics improved a bit, but remain challenged relative to pre-Covid levels.
- Global stock markets experienced a positive week, with foreign outperforming U.S. equity markets. Domestic bonds fell back as interest rates ticked higher, while foreign bonds benefited from a weaker dollar. Commodities rose across the board, with strong demand and supply concerns, particularly for crude oil.
U.S. stocks gained ground last week, with positive sentiment appearing to originate from flattening Covid case counts, a pickup in vaccine distribution, optimism about the next fiscal package coming, as well as tempered inflation readings. Earnings continue to come in a bit better than expected, albeit on lowered expectations as is typical, but the speed of the improvement has surprised markets to the upside a bit.
By sector, the week was led by sharp gains in energy (following the price of oil) and communications services (led by the video gaming and social media group), while utilities and consumer discretionary experienced minor declines. Real estate gained over a percent, despite slightly higher interest rates. Small cap stocks again outperformed large caps by about a percent, in keeping with a continued investor rotation toward cyclical assets.
Foreign stocks outperformed U.S. equities last week, with some help from a weaker U.S. dollar. As has been the case lately, sentiment has been driven by U.S. markets and stimulus probabilities, as well as global infection rates and vaccine distribution progress. As an example of the divergence in results by region, the U.K. reported a -10% drop in GDP for 2020, which was more than twice the decline of the U.S. Emerging markets outgained developed markets, with China leading the way, prior to a week-long market closure for the Lunar New Year.
U.S. bond prices fell back along with continued ticks higher in interest rates. Investment-grade corporate fared slightly better than treasuries, while high yield bonds earned slightly positive returns, in closer correlation with equities. Developed market foreign bonds fared positively, almost solely due to a weaker dollar, with emerging market bond returns mixed, and also currency driven.
Commodities rose broadly by several percent last week, led by price gains in energy and industrial metals, while agriculture and precious metals were little changed. The price of crude oil increased by nearly 5% to just under $60/barrel. It appeared OPEC continued to cut output, while the narrative has moved steadily toward a new ‘supercycle’ in the space, as demand recovers from the pandemic. Some concerns have surfaced that a Biden Administration green agenda may continue to put downward pressure on U.S. output, resulting in possible shortages and need to potentially import crude—a reversal of the celebrated U.S. ‘energy independence’ of recent years.
|Period ending 2/12/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.13||-1.23|
|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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