Economic Update 5-10-2021

• Economic data for the week included pullbacks but still historically-strong showings for manufacturing and services. While jobless claims improved, the employment situation report for April proved a disappointment.

• U.S. equity markets fared positively last week, upon the heels of strong earnings reports and continued improvement in the global economy. Foreign stocks outperformed, with help from dollar weakness. Bonds also gained, as interest rates fell back further from recent highs; foreign debt benefited from dollar weakness as well. Commodities gained across the board with continued growth in demand and positive sentiment.

U.S. stocks ended higher on the week, with cyclicals generally outperforming ‘growth,’ seen by weakness in the Nasdaq for much of the week. By sector, energy and materials led, with gains over 5% each, followed by strong showings in financials and industrials. Lagging groups included utilities, down a percent, along with similar results for real estate.

In an interview mid-week, Treasury Secretary Yellen noted that interest rates may have to ‘rise somewhat’ to prevent economic overheating. This isn’t really earth-shattering news, but the timing, coupled with recent strong economic results, caused the markets to take pause. This is especially noteworthy compared to Fed Chair Powell’s insistence that no market excesses are forming and economy is far from the normal point. She seemed to later walk back the comments a bit, noting that inflation and growth weren’t there ‘yet.’ The poor employment report on Friday reversed the concerns somewhat about conditions running ‘too hot,’ by rewarding the Covid ‘winners’ from last year (growth, tech, etc.). Other than the possible slowdown in cyclical recovery the jobs reported hinted, stocks generally were less bothered by the economic implications of the report, then they were enthused by its possible use as more evidence for the Fed to keep policy accommodative for longer.

Foreign stocks generally outperformed U.S. equities last week, with the tailwind of the weaker dollar. This appeared to be buoyed a bit by hints of the ECB considering the tapering off of ongoing bond purchases, despite the recovery being behind that of the U.S. However, sentiment in Europe has driven by stronger vaccination numbers and broadened reopening plans, while Japan’s state of emergency continues. Developed markets all outperformed emerging, despite strength in commodity-focused Brazil, Russia, and South Africa, while China fell in the negative for the week.

U.S. bonds experienced a positive week, as interest across the belly of the treasury yield curve again normalized lower. This appeared to be helped by the weaker jobs report and Fed comments alluding to continued accommodative policy (all bullish for rates ‘lower for longer’). As credit spreads also tightened, investment grade corporates outperformed, while high yield was little changed. A percent decline in the dollar was a tailwind for foreign debt, resulting in a positive week for both developed and emerging market debt. Interestingly, the most recent treasury bill sale ended with a yield of 0% for the first time in a year, as demand for safe, liquid assets more than met supply. This reiterates the large amount of liquidity available in the marketplace, with increasingly few places to go. While earning zero might not sound the least bit prudent, large institutional investors have few other options for these safe assets.

Commodities fared well last week, earning positive returns in the low-single digits across the board, helped by a weaker dollar. Agriculture and industrials led all groups with returns over 5%, with continued investor flows encouraged by recent positive momentum and stronger global demand. The price of crude oil gained 2% to just under $65/barrel, as inventories fell more than expected, and demand and mobility continue to show signs of repair along with broader reopenings.

Period ending 5/7/2021	1 Week (%)	YTD (%)
DJIA	2.72	14.33
S&P 500	1.26	13.25
NASDAQ	-1.48	6.94
Russell 2000	0.25	15.35
MSCI-EAFE	2.59	9.36
MSCI-EM	0.09	4.93
BBgBarc U.S. Aggregate	0.28	-2.34

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2020	0.09	0.13	0.36	0.93	1.65
4/30/2021	0.01	0.16	0.86	1.65	2.30
5/7/2021	0.02	0.14	0.77	1.60	2.28

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