Economic Update 6-01-2021
- Economic data for the week included largely unchanged Q1 GDP estimates, and a decline in durable goods orders. On the housing side, prices continue to show strong momentum, while sales fell due to increasingly tight inventories. Jobless claims continued to improve and point to labor market repair.
- Global equity markets continued to benefit from strong economic rebound activity and consumer sentiment. Bonds also benefitted from a pullback in interest rates. Commodities were led by demand expectations for energy and metals.
U.S. stocks gained on a lighter pre-Holiday week, with economic data coming in largely as expected overall. Soothing language from government officials about inflation staying ‘transitory’ seemed to calm market fears to some degree. By sector, communications and consumer discretionary led the way with gains above 2%, with Facebook, Alphabet and a rebound by Tesla providing leadership. Small caps fared about twice as well as large caps, along with their perceived greater sensitivity to recovery. On the other hand, defensive utilities, health care, and consumer staples lost ground last week. Real estate also gained a few percent, fueled by more tempered interest rates. Results in May were led by ‘value’ (particularly financials and energy) as the post-Covid reflation trade continued, outperforming ‘growth’ which lost ground during the month (mostly consumer discretionary but also technology).
Foreign stocks were driven by similar drivers of reopening activity and stronger economic data, as well as widening vaccinations (although still well behind the U.S.). Emerging markets outperformed developed markets, with leadership in both Asia as well as commodity-sensitive nations such as Brazil and Russia. For the past few weeks, a weaker dollar has played a more important role, pushing net returns higher—particularly in more volatile emerging markets. Hopes for a stronger post-Covid recovery remain robust in those areas, despite current struggles on the ground in several countries, including India and Brazil.
U.S. bonds fared positively last week again, as interest rates fell—particularly along the longer end of the treasury yield curve. Investment-grade debt outperformed both high yield and bank loans. With little change in the dollar last week, foreign developed market bonds performed similarly to U.S. government, while emerging market fared slightly better. For the month of May, emerging market bonds outperformed other areas with strong gains along with tighter spreads due to continued risk-taking by investors.
Commodities gained across the board last week, led by positive returns in energy and industrial metals. Higher supplies for corn caused a bit of a correction on the agricultural side, which flattened returns for that group during the week. The price of crude oil regained over 4% to over $66/barrel, at the higher end of its recent range. Factors include virtual OPEC meetings this coming week, as the market continues to digest strengthening energy demand, but also high Covid case levels in several countries, and the potential impact of new supply from Iran. In May, most groups experienced gains, especially high-single digit returns for precious metals, which experienced a reversal in recent sub-par performance along with market concerns over rising inflation. However, as we’ve noted previously, the relationship between precious metals and inflation is not as clear-cut or consistent as its historical performance as a more effective ‘risk-off’ asset.
|Period ending 5/28/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.35||-2.29|
|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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