Economic Update 3-01-2021
- Economic data for the week included little change in 4th quarter GDP, while improvements were seen in personal income, durable goods orders, consumer confidence, and various housing sales metrics.
- Global equity markets fell, as rising interest rates, fears of inflation, and general profit-taking appeared to dominate sentiment. Bonds also lost ground, being affected by rising rates even more directly. Commodities gained on the heels of stronger crude oil prices.
U.S. stocks declined across the board last week. The primary equity concern as of late appears to be less on the vaccine distribution (which is plugging along slowly in the U.S., and hampered by poor weather), but the incremental rise in interest rates across the middle and longer end of the curve. Thursday was an especially negative day, with more broad market concern over potential inflation pressures causing equity investors to question the current bull market recovery, and higher treasury rates.
By sector, energy gained over 4% along with strength in petroleum prices, while consumer discretionary, technology, and utilities were the worst-performing groups. The Nasdaq experienced its most severe decline in several months, as ‘long duration’ growth stocks were hit hardest by interest rate fears.
Foreign stocks in developed Europe and the U.K. fared slightly better than those in the U.S. A stronger British pound helped that region, as the recovery from Brexit is proceeding, lockdown removal plans are in place, and valuations there appear better than in other regions. Emerging markets declined sharply, by nearly -7%, led by weakness in Brazil and China. A stronger U.S. dollar and rising rates continues to often act as a headwind for EM nations, as it implies tighter liquidity and more difficult financing conditions.
U.S. bonds pulled back as the above-noted inflation concerns weighed on demand and pushed interest rates higher. Treasuries performed better than corporates, as spreads widened across the board. Foreign bonds performed negatively in developed and emerging markets as well, hampered by a rise in the U.S. dollar.
Commodities gained overall, despite the headwind of a rising dollar. This was led by gains in energy and agriculture, while precious metals fell back (gold’s relationship to inflation fears is inconsistent, but is generally inversely correlated to rising real yields). The price of crude oil rose by nearly 4% to $61.50/barrel, led by continued rising demand and contained supply. This offset a -7% drop in natural gas as the blizzard conditions nationwide tempered last week to more normal temperatures.
|Period ending 2/26/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.36||-2.15|
|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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