Economic Update 3-15-2021
- Economic data for the week included tempered increases in both the producer price index and consumer price index, which appeared to calm some fears about rising inflation. Consumer sentiment continued to improve, as did several labor metrics on the margin.
- Global equity markets gained, with the passage of the U.S. Congressional stimulus package, and stronger optimism surrounding vaccine distribution. Bonds fell back again, with interest rates ticking higher along with festering inflation fears. Commodities were little changed, with metals rising in price, while energy fell back from recent highs.
U.S. stocks gained as sentiment continued to recover, with the final signing of the most recent stimulus package (dubbed the American Rescue Plan Act), and inflation readings came in more tempered than first feared. President Biden also directed states to make vaccines available to all American adults by May 1, which appears ambitious based on current supplies and distribution efforts, but raised hopes broadly for a faster recovery.
Small caps continued to lead the most recent recovery, up over 7% on the week, with stronger investor interest due to their cyclical nature. Their year-to-date gain of almost 20% stands in strong contrast to fears about the economic impact on small businesses relative to large (publicly-traded small cap stocks aren’t quite in the same category as mom-and-pop small businesses, anyway). Every sector was positive last week, led by consumer discretionary, materials, and utilities, each up over 4%. Energy and health care were up only a percent, falling last in the pack. Real estate gained over 5% as sentiment continued to improve about the health of retail and lodging.
Foreign stocks in Europe and the U.K. gained to a slightly lesser degree than in the U.S., while Japan underperformed. The European Central Bank acted in response to recent rising bond yields, by promising support of additional monthly bond purchases. Emerging markets lagged developed, although commodity producers, such as Russia and Mexico fared positively, while China and Korea lost ground.
U.S. bonds lost ground again last week, as interest rates ticked up at the longer end of the curve. Treasuries fared slightly better than investment-grade corporates, while floating rate bank loans led other groups with flattish returns. Despite the rate impact, foreign bonds in developed markets gained due to a weaker dollar. Emerging market bonds were mixed. While the 10-year treasury has reached its highest level in 12 months, and the curve has steepened, rates remain very low from a historical perspective—with real rates near zero, at best. Such a ‘bond scare’ of a quarter- or even half-percent rate rise is mild compared to those seen in past decades, and well within the band of normal volatility.
Commodities were little changed net, experiencing one of the calmer weeks recently. Both industrial and precious metals gained, with energy falling back slightly. The price of crude oil traded in a tight range last week, ending down nearly a percent back under $66/barrel, as inventories rose.
|Period ending 3/12/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.43||-3.35|
|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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