Economic Update 4-12-2021
- Economic data for the week included historical strength in ISM services, coupled with strength in job openings, and an especially strong increase in producer prices.
- U.S. equity markets gained ground last week, outperforming foreign markets, which also showed gains to a lesser degree. Bonds also fared well with interest rates falling back a bit. Commodities were mixed, with agriculture and metals offsetting a pullback in energy prices.
U.S. stocks reacted well early in the week to the prior Friday’s strong jobs report, with a delayed response due to Good Friday. The IMF also upgraded their forecasts for world GDP growth this year from 5.5% to 6.0% (resulting in the strongest expected growth pace since 1980), and a small upgrade for 2022 to 4.4%.
By sector, recoveries of 4% in technology and communications led the way, helped by Apple and Microsoft bullishness, with all sectors ending positively except for energy, which lost -4% in keeping with lower crude oil prices. Earnings for Q1 will be starting to roll out this coming week, which could likely drive sector sentiment, although year-over-year comparisons compared to Q1 2020 could continue to look unusual.
In terms of the Biden infrastructure plan, interestingly, the Senate Parliamentarian ruled that the reconciliation process can be used more than once a year (it was previously thought to be capped at once—taken up by the $1.9 tril. recent stimulus package). This opens the door to further stimulus and other bills that can be handled through that budget reconciliation process, which only requires a simple majority of 51 Senate votes, as opposed to the two-thirds needed for the passage of more formal legislation.
Foreign stocks performed positively, but lagged returns of U.S. equities, despite the bullish influence of a weaker dollar. Strong economic news and the above-mentioned upgrade in IMF estimates helped with sentiment, as did falling yields in Europe due to continued high Covid infection rates. Chinese stocks fell back upon continued tensions with the U.S. and supply disruptions, leading to higher inflation readings, although recovery growth continues to lead the rest of the world.
U.S. bonds fared positively for the week as interest rates continued to come back downward. Oddly, treasuries, investment-grade corporates, bank loans, and high yield all gained to roughly similar degrees. Foreign developed market bonds gained over a percent, due to a weakened dollar, with returns for emerging market debt falling just behind.
Commodities were mixed, with higher prices for agricultural goods and metals offsetting declines in energy. The price of crude oil declined by over -3% to a shade over $59/barrel, while natural gas also fell by over -4% for the week.
|Period ending 4/9/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.40||-2.90|
|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.
FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT