Economic Update 6-07-2021
- On a Memorial-Day shortened week, economic data included strong results for manufacturing and services indexes. Employment numbers were mixed, as jobless claims improved, as did the employment situation report number, although the latter fell short of market expectations.
- Global equity markets earned positive returns last week, with stronger economic data coupled with eased worries about the duration of continued government policy support. U.S. bonds gained slightly as interest rates pulled back after a lackluster jobs data. Commodities continued to gain ground, largely due to higher oil and natural gas prices last week.
U.S. stocks gained in a lighter-volume holiday week. By sector, energy led all others by rising nearly 7%, in keeping with another weekly spike in crude oil prices. Real estate also fared well, gaining over 3% on the week, as interest rates continued to stay contained and ongoing removal of Covid restrictions gaining steam around the country—the latter boding well for the maligned retail and lodging sectors. Consumer discretionary and healthcare lagged last week, with declines of over a percent each; the former was due to negative results from several companies, primarily large index constituent Tesla.
Meme stocks have again been a focus of the headlines recently, with AMC Entertainment with a gain of 200% over the past week (and 3600% year-to-date). The company did make the somewhat savvy move of issuing additional shares at these recently-inflated prices, which ironically improved the company’s capital position. In some embracing of its newer hip investor base, management rewarded its shareholders with special movie screenings and free popcorn.
Foreign stocks fared slightly better than domestic, with strength in Japan, while Europe fared similar to U.S. large cap markets. As in the U.S., gradually improving economic conditions are weighed against the timeframe and level of government monetary and fiscal stimulus. In the U.K., concerns over virus variants have put a cloud on upcoming further openings somewhat. Emerging markets outperformed other groups, with leadership from Brazil and Russia—both commodity producers.
U.S. bonds fared positively, as interest rates continued to moderate, notably with several Fed officials noting the continued slack in the economy and labor markets (seen by Friday’s weaker-than-expected employment situation report). This has to lessened fears of an earlier Fed tightening cycle. Credit spreads also declined, which contributed to the outperformance of corporates over treasuries. The Fed also announced that the Secondary Market Corporate Credit Facility (including the controversial purchase of ETFs) would be would down by year-end. Foreign developed market debt was flattish on the week, while emerging market bonds gained in both USD- and especially in locally-denominated terms as investors sought risk and higher yields generally.
Commodities continued their upward momentum last week, with gains in energy and agriculture offsetting minor declines in industrial and precious metals. The price of crude oil rose 5% to nearly $70/barrel, as higher expected demand this summer and tighter near-term supplies in the U.S. have outweighed expanded OPEC production goals and continued speculation about bringing Iranian output back online.
|Period ending 6/4/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.12||-2.17|
|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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