Market Update: January 19th, 2021
Photo by Thomas Habr on Unsplash
Economic data for the week included a deeper-than-expected decline in retail sales, weaker Empire state manufacturing, and an unexpected rise in jobless claims. Producer and consumer inflation measures rose slightly, in keeping with the recent trends. Industrial production, on the other hand, continued to increase.
Global stock markets declined last week, with mixed economic data resulting from continued high Covid cases. Bonds were little changed in the U.S. in keeping with slower rises in interest rates, while foreign bonds were hampered by a stronger U.S. dollar last week. Commodities were mixed to neutral in several key areas, such as energy, but agricultural prices saw a spike due to rising demand.
U.S. stocks began 2021 on a down note Monday, with rising Covid cases nationwide and uncertainty over Georgia’s dual-runoff Senate elections the following day beginning to concern investors, as polls showed far tighter races than expected. In a strange twist of fate, market results turned positive Wednesday despite the narrow Democratic victory (as discussed above), as well as when the chaos at the U.S. Capitol ended with a formal electoral certification of Joe Biden as President. As is often the case with domestic civil strife, markets were little affected directly. Later in the week, a disappointing jobs report added hope for another fiscal aid package led by Democrats.
By sector, cyclical energy and materials led with gains well over 5% each, followed by consumer discretionary stocks and financials. Defensive utilities and consumer staples lagged with minor declines. Small caps outperformed large caps by several percent, in keeping with the strength in cyclical assets. However, real estate also lost ground as interest rates ticked higher.
Foreign stocks outperformed U.S. stocks last week, led by the U.K. and emerging markets. Strong industrial results in Germany, as well as relief sentiment in the U.K. post-Brexit, appeared to be primary catalysts for continued gains. As in the last few weeks, hopes for an improved post-Covid environment as vaccine distribution ramps up appears to be driving investor moods, as opposed to any differentiating factors regionally.
U.S. bonds fell back sharply last week, up to a percent or more in total return as interest rates ticked higher. However, treasuries outperformed investment-grade corporates. The bellwether 10-year Treasury note yield crept back over the 1.0% level as the Georgia election results raised expectations for more government spending (as noted earlier). Floating rate bank loans ended the week as one of the few bond groups with positive returns in the U.S. Foreign bonds declined in both developed and emerging markets, as the U.S. again re-strengthened.
Commodities ticked higher along with other cyclical assets, bucking the headwind of the slightly stronger dollar. Energy led, coupled with gains in industrial metals, while precious metals fell back last week. The price of crude oil rose over $50/barrel early in the week after Saudi Arabia unexpectedly announced a production cut of 1 mil. barrels/day for Feb. and March, offsetting slightly higher production for other nations. For the week, crude gained nearly 8% to over $52, followed by gains in natural gas.
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.