Economic Update 4-05-2021
- On a holiday-shortened week, economic data included strong manufacturing data, as well as continued growth in home prices and consumer confidence. Jobless claims rose a bit, but the March employment situation report came in showing stronger-than-expected recovery.
- Global equity markets were mixed to higher last week, along with continued improving economic news. Bonds were also mixed, with rates little changed, but gains in corporates as spreads tightened. Commodities were flat on net, with gains in energy offset by declines in metals.
U.S. stocks entered the week with a bit of uncertainty, which was blamed on the unwinding of a large hedge fund, Archegos Capital, that was forced to unwind several losing positions and negatively affecting the capital of large multinational investment banks Credit Suisse and Nomura (who lent the shares to Archegos). Nevertheless, the S&P reached a new record high by 4,000 by the end of the holiday-shortened week.
The Biden infrastructure plan has also been rolled out in preliminary form, and is a bit smaller than some expected (first round at around $2 tril., versus some estimates of up to $4 tril.), which perhaps calmed markets that were fearing a far larger price tag. The focus of this first bill appears to be on traditional infrastructure upgrades, research and development, modernizing the electric grid, wider high-speed broadband internet, and drinking water improvements. However, there are promises of a second bill with a ‘softer’ focus on health care, education, and other human infrastructure components. There remain questions about the tax policy implications that are likely to occur in order to pay the bill, notably on the corporate side and the highest personal income tax brackets.
By sector, communications led the week with a 3% increase, helped by strength in Facebook, followed by consumer discretionary and technology. Defensive consumer staples and healthcare lagged, with minor declines. Real estate gained over a half-percent for the week, with some stabilization in interest rates and fundamental improvement on the ground.
Foreign stocks were mixed, with gains in Europe offset by declines in Japan. It appeared that sentiment followed that of the U.S., with infrastructure spending potentially boosting global GDP outweighing continued high Covid infection rates. This coupled with another broad lockdown in France. Emerging markets also gained slightly, with fairly broad strength across the board, led by Chinese stocks. Despite the lag in their recovery, stronger forward-looking economic growth tends to help sentiment for risk-taking in the group.
U.S. bonds gained on the short week, with minimal changes in treasuries offset by gains in investment-grade and high yield corporates, due to tighter spreads. With a slight rise in the dollar, foreign developed market bonds fell, while emerging market bonds gained with tighter spreads.
Commodities were generally flat on net for the short week, with energy prices rising while both industrial and precious metals declined. The price of crude oil bounced around again last week a bit before ending up almost a percent at just above $61/barrel. The container ship stuck in the Suez Canal was freed over the prior weekend, which allowed traffic to flow, and ending the temporary oil crunch.
|Period ending 4/2/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.00||-3.28|
|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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