Monthly Archives: February 2021
U.S. Treasury Yield Curve Steepened Last Week
Market Data as of Week Ending 2/19/2021 unless noted otherwise.
U.S. equities experienced a mixed week as most major indices finished lower. The holiday shortened week started off strong as the combination of further fiscal stimulus, continued accommodative monetary policy and better-than-expected fourth quarter earnings drove optimism higher. However, near-term inflation concerns and the recent uptick in Treasury yields appeared to weigh on risk assets. Medium and large sized company stocks outperformed their small company peers while value outperformed growth across the board. The energy sector enjoyed another positive week as the price of U.S. crude oil eclipsed $60 per barrel for the first time in over a year on Tuesday as the winter storm that swept across Texas disrupted supply. Fast growing tech stocks lagged as the increase in longer-term interest rates raised the discount rate on future earnings. Developed foreign stocks in Europe and Asia outperformed U.S stocks as shares were supported by strong earnings and better-than-expected manufacturing growth. Emerging Market stocks lagged developed foreign markets.
The U.S. Treasury yield curve steepened last week on the back of strong economic momentum and increasing inflation concerns. The 10-year U.S. Treasury yield rose by 14bps to 1.34%, its highest level in nearly a year. Investment grade corporate bonds ended the week yielding approximately 2.0% and high yield corporate bonds are yielding nearly 4.8%.
Economic data released during the week was mostly positive. U.S. retail sales jumped 5.3% in January, its largest increase in eight months, adding to evidence of a rebound in the economy after the most recent round of stimulus and declining COVID-19 cases. Weekly initial unemployment claims climbed to 861,000, showing that Americans are still being laid off nearly a year after the onset of the pandemic. February manufacturing data appeared to weaken as both the Philly Fed index and flash Markit PMI dipped from their January readings. However, the service sector continued its acceleration as the index rose to 58.9 in February. Japan’s Nikkei index has climbed over 30,000 amid a better-than-expected fourth quarter GDP report in which the Japanese economy grew at a 12.7% annualized pace.
Analysts now Project Double-Digit Earnings Growth for all Four Quarters of 2021
Market Data as of Week Ending 2/12/2021 unless noted otherwise.
U.S. equities finished higher across the board last week, reaching record highs as optimism was lifted by declining infections and the proposed $1.9T stimulus package. This was the last major earnings week, as 82 companies reported fourth quarter results. Currently 74% of companies in the S&P 500 have reported results, 80% of those companies have beaten EPS estimates while 78% have beaten revenue estimates, well above their 5-yr averages. Due to the strength of these results, analysts now project double-digit earnings growth for all four quarters of 2021. Small and medium sized company stocks built on their out-performance over their large company peers while value outperformed growth in large and small caps. The energy sector enjoyed another positive week as an uptick in production cuts and a drop in U.S. crude inventory drove oil prices higher. The consumer discretionary sector lagged as both Amazon and Tesla weighed on returns. Developed foreign stocks in Europe and Asia outperformed U.S stocks after being buoyed by vaccine progress and improved infection rates. Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields fell for most of last week as the most recent inflation data was subdued. Positive sentiment late in the week lifted the 10-year U.S. Treasury yield by 3bps, closing the week at 1.20%. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield corporate bonds are yielding nearly 4.8%.
Economic data released during the week was mixed. The NFIB small-business index fell to 95.0, marking its lowest level since the beginning of the pandemic as small-business owners have become more pessimistic. Consumer inflation rose at its fastest pace in five months, mostly due to the rise in oil prices. Weekly initial unemployment claims jumped to 793,000, signaling that workers are still losing their jobs despite improving Covid-19 conditions. Consumer sentiment fell to a six-month low of 76.2 as hopes for a stronger economy by summer has dimmed. The UK economy expanded 1.0% in Q4, above expectations, due to strong growth in the government consumption and construction components of GDP.
112 Companies Reported Fourth Quarter Results
Market Data as of Week Ending 2/5/2021 unless noted otherwise.
U.S. stock prices rebounded from last week’s sell-off, helped by improved economic data, ongoing fiscal stimulus talks and optimistic vaccine developments. It was an active earnings week as 112 companies reported fourth quarter results. Early earnings results suggest that 69% of S&P 500 companies have beat estimates by one standard deviation, well above the 46% historical average. However, strong earnings haven’t been rewarded this quarter as companies who beat estimates have underperformed the S&P 500 the day after by an average of 100bps. Small and medium sized company stocks outperformed their large company peers while growth stocks outperformed value. All eleven sector’s enjoyed a positive week, with energy stocks outperforming as domestic oil prices hit their highest level in over a year. Healthcare shares lagged the overall market, posting a 0.50%gain. Developed foreign stocks in Europe and Asia lagged U.S stocks after a mixed week which reported a smaller-than-expected growth contraction, but disappointing earnings. Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields were mixed this past week as investment grade corporate bond spreads tightened. The 10-year U.S. Treasury yield rose 8bps, closing the week at 1.17%. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield corporate bonds are yielding more than 4.8%.
Economic data released during the week were mixed and overshadowed by optimism surrounding further fiscal relief. Weekly initial unemployment claims declined to a nine-week low of 779,000, suggesting that hiring is slowly picking back up. U.S. manufacturers grew at a slightly slower pace in January as the ISM index slipped to 58.7%. The U.S. unemployment rate fell to 6.3%, reaching a new pandemic low. However, the U.S. regained a meager 49,000 jobs in January suggesting the decline in unemployment may be tied to people dropping out of the labor force. The Bank of Japan is likely to begin allowing its long-term government bond yields to rise through a reduction of long-term bond purchases.
U.S. Stock Prices Declined Sharply Amid Heightened Trading Volumes and Volatility
Market Data as of Week Ending 1/29/2021 unless noted otherwise.
U.S. stock prices declined sharply amid heightened trading volumes and volatility as markets saw the largest hedge fund de-grossing since February 2009. Fourth quarter U.S. GDP missed consensus estimates and remained below pre-pandemic levels, reflecting the continued affect of the pandemic. Company earnings continue to roll in as over one-third of companies in the S&P 500 have reported results as of the 29th. Earnings are projected to end 2.3% lower than last year, an improvement on the 4.8% decline that was expected. Large and medium sized company stocks generally outperformed their small company peers while growth versus value was mixed. Ten of the eleven sector’s posted negative returns, as real estate was the only sector to post a gain. Developed foreign stocks in Europe and Asia lagged U.S stocks due to the COVID-19 vaccine supply disagreement and the IMF’s downward revision of its UK’s growth forecast. Emerging Market stocks lagged developed foreign markets.
U.S. Treasury yields moved lower this past week as intermediate and longer term yields declined. The 10-year U.S. Treasury ended the week at 1.09% after breaching 1.0% briefly midweek. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield corporate bonds are yielding more than 4.9%.
Economic data released during the week were mixed and overshadowed by short-squeeze battles that triggered extreme price fluctuations among several stocks. Weekly initial unemployment claims declined to a three-month low of 847,000, as layoffs still remain extremely elevated. Consumer confidence rose to 89.3 in January as optimism surrounding the vaccine increased. Consumer spending decreased 0.2% while incomes rose 0.6% in December, suggesting consumers have money to spend once they regain confidence in the economy. Portugal announced that lockdown restrictions will be in place until mid-February, while France debates over implementing its third lockdown.