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High Yield Bonds were the Best Performing Asset Class

Market Data as of Week Ending 3/26/2021 unless noted otherwise.

Equities
U.S. stock prices were mixed as investors weigh near-term uncertainty with improving prospects for economic growth. Corporate profitability continues to improve as earnings growth estimates for the first quarter rose again during the week. According to FactSet, the current estimated earnings growth rate for the S&P 500 is 23.3%. Small and medium sized companies lagged their large company peers for the second consecutive week and value stocks outperformed growth. Sectors that tend to be more defensive such as consumer staples and real estate outperformed with gains in each sector. Communication services and consumer discretionary lagged the broader market. Developed foreign stocks in Europe and Asia underperformed U.S stocks and Emerging Market stocks lagged developed foreign markets.

Bonds
U.S. Treasury yields declined and finished the week at 1.68%. High yield bonds were the best performing asset class and longer-term bonds outperformed short duration bonds. Short-term government bonds were the worst performing asset class but still managed to deliver a small gain. Investment grade corporate bonds ended the week yielding nearly 2.3% and high yield corporate bonds are yielding more than 4.4%.

Macroeconomic Data
Economic data released during the week were mixed as the severe winter weather in February was a headwind for home sales and business investment. Weekly initial unemployment claims declined to 684,000, the lowest level of the pandemic, and 4.1 million Americans continue to claim ongoing unemployment benefits. Inflation remains low as the U.S. reported a 1.6% increase in the headline figure while the core measure (excluding food and energy) personal consumption expenditures index increased by 1.4% year over year in February. Core inflation was down from 1.5% in January and still well below the Federal Reserve’s 2% target. Despite rolling coronavirus lockdowns for much of Europe, business activity unexpectedly grew in March to 52, which is the highest level since late 2018.

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Corporate Profitability Continues to Improve

Market Data as of Week Ending 3/19/2021 unless noted otherwise.

Equities
U.S. stock prices declined after major benchmarks rose early in the week and then reversed course as bond yields increased to their highest levels in more than a year. Corporate profitability continues to improve as earnings growth estimates for the first quarter rose during the week. According to FactSet, the current estimated earnings growth rate for the S&P 500 is 22.6%. Small and medium sized companies lagged their large company peers and style factors such as value and growth were mostly irrelevant. Sectors that tend to be more defensive such as consumer staples, communication services, and healthcare outperformed with gains in each sector. Energy and financials lagged the broader market as they were pressured by declining oil prices and new policy from the Federal Reserve. Developed foreign stocks in Europe and Asia outperformed U.S stocks and Emerging Market stocks lagged developed foreign markets.

Bonds
U.S. Treasury yields rose again this past week to 1.75% before settling in to finish the week at 1.72%. Despite statements from the Federal Reserve that they anticipated no rate hikes until 2023, along with their confidence that any increase in inflation will prove short-lived, the bond market response demonstrates that market participants are not convinced. Longer-term bonds lagged for the week while short duration investment grade corporate bonds were the best performing asset class. Investment grade corporate bonds ended the week yielding nearly 2.3% and high yield corporate bonds are yielding more than 4.5%.

Macroeconomic Data
Economic data released during the week were mixed and mostly overshadowed by the Fed and how they would respond to massive fiscal stimulus. One reason why the Fed believes inflation is not a near-term concern is that we still have 4.1 million Americans who continue to claim ongoing unemployment benefits. Weekly initial unemployment claims increased to 770,000 and other measures of economic growth such as retail sales, industrial production and homebuilder sentiment declined. However, the Fed remains committed to the current pace of asset purchases at $120 billion per month and upgraded its economic growth projection from 4.2% to 6.5%. Japan ended the coronavirus state of emergency in Tokyo (and surrounding areas) and their central bank reaffirmed their commitment to large-scale asset purchases during times of heightened market instability.

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The Major Benchmarks Reached New Record Levels

Market Data as of Week Ending: 3/12/2021 unless noted otherwise

EQUITIES

U.S. stock prices advanced and most of the major benchmarks reached new record levels. Earnings growth estimates for the first quarter rose during the week. According to FactSet, the current estimated earnings growth rate for the S&P 500 is 22.1%. Small and medium sized companies outperformed their large company peers as investor sentiment for a sustained economy recovery takes hold. Value stocks outperformed growth, led by strong gains in the real estate, consumer discretionary, and utilities sectors. All eleven major economic sectors were positive, but an eclectic group of communication services, energy, and health care lagged the broader market. Developed foreign stocks in Europe and Asia outperformed U.S stocks and Emerging Market stocks lagged in developed foreign markets.

BONDS

U.S. Treasury yields advanced this past week as President Biden signed the $1.9 trillion American Rescue Plan Act and the Treasury Department announced that the stimulus payment distribution process would begin over the weekend. High yield corporate bonds were the best performing asset class and shorter duration bonds outperformed. Investment grade corporate bonds ended the week yielding nearly 2.3% and high yield corporate bonds are yielding more than 4.5%.

MACROECONOMIC DATA

Economic data released during the week were better than expected as inflation data was muted and the weekly jobless claims dropped to the lowest level since November. The Labor Department reported lower than expected core inflation (excludes food and energy) coming in at 0.1% for the month of February. Weekly initial unemployment claims declined to 712,000 and 4.1 million Americans continue to claim ongoing unemployment benefits. The ECB announced it would accelerate bond purchases in the second quarter and economic growth for the region was revised lower. Europe has lagged the U.S. and the U.K. with vaccine distribution and continues to deal with more draconian coronavirus restrictions.

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$1.9 Trillion Stimulus Package Passes in the Senate

Market Data as of Week Ending 3/5/2021 unless noted otherwise.

EQUITIES
U.S. stock prices were mixed as long-term interest rates trended higher, reducing the outlook for growth stock valuations. The fourth quarter of 2020 marked three consecutive quarters of better than expected profit growth. 79% of companies in the S&P 500 reported a positive earnings surprise, the third highest since FactSet began tracking this metric in 2008. Analyst have been raising estimates for the first quarter of 2021. According to FactSet, the current estimated earnings growth rate for the S&P 500 is 21.8%. Value stocks outperformed growth led by strong gains in the energy sector as oil prices reached their highest levels in more than a year. Weakness in growth-oriented sectors such as consumer discretionary and information technology, were offset by gains in cyclical sectors such as financials and industrials. declined. Developed foreign stocks in Europe and Asia lagged U.S stocks and Emerging Market stocks outperformed developed foreign markets.

BONDS
U.S. Treasury yields advanced this past week as the $1.9 trillion stimulus package passed in the Senate and Fed Chair Jerome Powell remains committed to allowing inflation rise above 2%. Investment grade corporate bonds ended the week yielding approximately 2.2% and high yield corporate bonds are yielding more than 4.5%.

MACROECONOMIC DATA
Economic data released during the week was better than expected but mostly overshadowed by the stimulus package and rising inflation expectations. The February jobs report came in above expectations with nonfarm payrolls rising by 379,000 and the unemployment dropped to 6.2%, a new low since the beginning of the recovery. Germany extended lockdown restrictions until March 28 but relaxed the rules in areas with low infection rates. Japan reported growth in the manufacturing data as the index rose to 51.4 in February from 49.8 in January.

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U.S. Treasury Yields Skyrocketed this Past Week

Market Data as of Week Ending 2/26/2021 unless noted otherwise.

EQUITIES
U.S. equities experienced a choppy week as most indices posted solid losses to close out the month. Investors continue to weigh inflation risks against the improving macro backdrop of ongoing vaccinations, a declining number of coronavirus cases and easy monetary policy. A majority of the volatility was attributed to growing fears among investors that higher inflation and the recent spike in Treasury yields could cause a mass exodus from equities into fixed income. Continuing February’s trend, value stocks outperformed growth stocks by a wide margin as growth stocks logged their worst month versus value since 2000. The energy sector continued its rally as vaccine progress fueled optimism about the reopening of the global economy driving oil prices higher. Consumer discretionary and information technology shares lagged in part by a steep decline in automaker Tesla and Apple. Developed foreign stocks and Emerging Market stocks underperformed U.S stocks as concerns grew that central banks might have to act sooner than expected to quell inflationary pressures that could accompany an economic recovery.

BONDS
U.S. Treasury yields skyrocketed this past week as the outlook for economic growth has become more promising. The 10-year U.S. Treasury yield reached 1.60% midweek, before ending the week at 1.41%. Investment grade corporate bonds ended the week yielding approximately 2.1% and high yield corporate bonds are yielding over 4.9%.

MACROECONOMIC DATA
A full slate of economic data was released last week. Consumer confidence climbed to a three-month high as Americans await stimulus payments and cases continue to decrease. Weekly jobless claims hit their lowest level, 730,000, in three months and recorded their biggest decline since August. Durable goods orders booked their biggest increase in six months, suggesting the economy is gaining steam. Consumer spending jumped 2.4% in January, its first increase in three months, as personal incomes rose by 10.0%. Core inflation rose by 0.3% last month, bringing the PCE price index to 1.5% in th e past year. Fourth-quarter German GDP data were revised up unexpectedly to a growth rate of 0.3% from an initial estimate of 0.1% on strong exports and solid construction activity.

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