Weekly Economic Update

Economic Update 5-24-2021

  • Economic data for the week included declines but still-strong readings for key regional manufacturing indexes, and a pullback in home sales and starts, while jobless claims improved and the index of leading economic indicators continue to show strength.
  • U.S. equity markets declined last week, and underperformed gains in foreign markets along with improved sentiment for the future. Bonds were little changed, along with minimal change in the yield curve. Commodities were mixed, with most falling into the negative, including lower oil and metals prices.

U.S. stocks were down on net, with concerns over inflation mixing in with positive news about stronger economic data and vaccine-fueled reopenings. Early in the week, Treasury Secretary Yellen’s comments in favor of higher taxes and unions seemed to not please market sentiment, nor did Fed minutes discussing the idea of a ‘taper,’ while a pared-back infrastructure bill revision may have helped. The defensive group of utilities, health care, and consumer staples were the only sectors in the positive, in addition to a strong week for real estate. Energy, materials, and industrials fared worst, with declines well over a percent.

We’re reluctant to mention bitcoin, but the price has fallen over -50% from an April high of $65,000, before rebounding 40% within hours. The unfolding of this could have added to equity market volatility, and again shows the unique nature of cryptocurrency markets (a volatile store of value of there was one). Other than Elon Musk’s comments, the announcement about the Chinese government further restricting its use as a payment mechanism, as well as additional official reviews from other governments, have put a damper on the excitement as the outcomes become more bimodal.

Aside from ongoing fears of persistence in inflation, another market worry that appears to be taking up space is the growing possibility of corporate tax hikes. The 21% rate cut from 2017 is under threat, with consensus new rate of the 25-28% range (assuming that initial Democratic targets are lowered to garner broader support). While a net negative, it would still be far below the 35% top rate from pre-2017 period. And, as is the case of personal income tax rates, the top rate is just that—the average tax rate paid is far lower. Nevertheless, such legislation would trim earnings expectations for 2022 and beyond.

Foreign stocks gained mostly across the board, aside from the U.K., with Japan in the lead, followed by emerging markets. In Europe and other areas, slowing infection rates and an increased pace of reopenings continued to lead investor sentiment. This was evidenced by strong PMI figures in Europe and Japan, showing improved expansion in conditions. While emerging markets are still with large challenges from Covid infections and being far behind in vaccinations, compelling valuations a stronger cyclical tilt when conditions do improve remain in positive points in favor of non-U.S. equities.

U.S. bonds were little changed to slightly higher by a few basis points, as interest rates were steady across the yield curve. So, therefore, very little to report in terms of price change. A slightly weaker dollar helped developed market foreign bonds, which gained almost a half-percent for the week, while emerging market bonds fell back slightly.

Commodities lost ground on net, despite the normally positive influence of a weaker dollar. Declines in energy, agriculture, and industrial metals of up to several percent were offset by a rise in precious metals of nearly 2%. The price of crude oil declined by nearly -3% to around $63.50/barrel, as some supply concerns abated—mostly due to apparent progress on a renewed U.S.-Iran nuclear deal, which would bring more future oil supply to market.

Period ending 5/21/20211 Week (%)YTD (%)
S&P 500-0.3911.29
Russell 2000-0.4112.55
BBgBarc U.S. Aggregate0.07-2.63
U.S. Treasury Yields3 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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