Monthly Archives: May 2021
Stock Prices Were Mixed Despite Strong Economic Data
Market Data as of Week Ending: 5/21/2021 unless noted otherwise
Equities
U.S. stock prices were mixed last week as positive economic data was tempered by tension in the middle east and continued inflation concerns. The first quarter earnings growth rate for the S&P 500 increased to 51.9% and is on track to mark the highest growth rate since 2010. There was no clear trend regarding the size of companies, but growth stocks edged out their value counterparts. Traditionally defensive sectors such as real estate, utilities, and consumer staples were among the best performing sectors, while cyclical sectors such as energy, industrials, and materials lagged. Developed foreign stocks in Europe and Asia outperformed U.S. stocks while Emerging Market stocks outperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields were mostly unchanged as the 10-year Treasury yield slipped down one basis point and ended the week at 1.62%. Inflation expectations have increased to their highest levels in more than 10 years. The 5-year breakeven inflation rate settled down toward the end of the week and finished at 2.62%. Results were mixed across bond segments, but longer duration government bonds were the best performing segment and long duration high yield corporates were the worst performer. Investment grade corporate bonds ended the week yielding nearly 2.2% and high yield corporate bonds are yielding over 4.3%.
Macroeconomic Data
Economic data was headlined by IHS Market’s Purchasing Managers’ Index (PMI) report that showed record levels for both the Services PMI and Manufacturing PMI. The Services PMI increased to 70.1 in May, up from 64.7 in April, which was the largest monthly increase since the series began in October 2009. Despite capacity concerns and rising input costs, accelerating client demand drove the Manufacturing PMI to a record level of 61.5 in May. Several countries across continental Europe and the UK have started the process of a gradual reopening by removing some of their coronavirus restrictions. Economic data in Europe improved as business activity grew at a sharply faster pace in May as the Eurozone PMI Composite advanced to 56.9, which is the highest level since early in 2018.
Inflation Concerns Continued to Weigh on Investor Sentiment
Market Data as of Week Ending: 5/14/2021 unless noted otherwise
Equities
U.S. stock prices declined again last week as inflation concerns continued to weigh on investor sentiment. Earnings season is nearing an end as 91% of companies in the S&P 500 have reported results. The first quarter earnings growth rate for the S&P 500 has surpassed 50%, which is more than double the estimated 23.8% at the end of the first quarter. Small and mid-sized companies generally lagged larger company peers and value stocks outperformed their growth counterparts. Consumer staples, materials, and financials were the best performing sectors, while consumer discretionary and information technology lagged. Developed foreign stocks in Europe and Asia narrowly outperformed U.S stocks while Emerging Market stocks lagged both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields increased after the Labor Department reported that core (excluding food and energy) consumer prices jumped by 0.9% in April – the largest monthly gain since 1982. The 10-year Treasury yield ended the week at 1.63%. All bond segments were in negative territory for the week but short-term investment grade corporate bonds were the best performing segment while long government bonds lagged. Investment grade corporate bonds ended the week yielding nearly 2.2% and high yield corporate bonds are yielding over 4.3%.
Macroeconomic Data
Economic data was headlined by the Labor Department’s inflation report that showed a significant jump in consumer prices during the month of April. Consensus estimates were already forecasting a higher than normal reading of 3.6% compared to last year, but the headline consumer price index (CPI) came in much higher than expected at 4.2% over the past 12 months. The monthly retail sales report showed no change for the month of April and the weekly unemployment claims dropped to 473,000. Economic data in Japan improved as spending accelerated to more than 6% year over year, despite a recent jump in coronavirus infection rates and a new state of emergency in certain regions of the country.
Blended First Quarter Earnings Growth Rate for the S&P 500 Doubled
Market Data as of Week Ending: 5/7/2021 unless noted otherwise
Equities
U.S. stock prices experienced a volatile week as inflationary concerns continued to weigh on investors. Markets staged a Friday rally, erasing early week losses and were able to end the week in the positive. Earnings season continued to wind down over the week, as 88% of the companies have reported results. As of today, the blended first quarter earnings growth rate for the S&P 500 is 49.4%, which is more than double the estimated 23.8% at the end of the first quarter. Size continued to not have a material factor during the week, but value stocks significantly outperformed their growth counterparts. Energy, materials, and financials were the best performing sectors, while consumer discretionary and information technology lagged. Developed foreign stocks in Europe and Asia outperformed U.S stocks while Emerging Market stocks lagged both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields had a choppy week as the market digested the latest jobs data and the Federal Reserve’s dovish remarks. The 10-year Treasury yield briefly fell below 1.50% – the lowest level in nearly two months – before bouncing back to end the week at 1.58%. Investment grade corporate bonds were the best performing asset class and recorded gains across short, intermediate, and long-term maturities. Investment grade corporate bonds ended the week yielding nearly 2.2% and high yield corporate bonds are yielding over 4.7%.
Macroeconomic Data
Economic data was headlined by April’s job’s report that showed the labor market’s recovery may take longer to resolve than expected. Manufacturing data also disappointed as the ISM manufacturing index fell to 60.7% in April, citing soaring prices and widespread shortages. The ISM services data was a bit more positive as the index slipped to 62.7% last month but remains near record levels. First quarter U.S. productivity rebounded at a 5.4% annual rate after a sharp decline the prior three months. Economic data in the Eurozone points to broad-based activity beginning to rebound as retail sales climbed 2.7% while German manufacturing orders rose 3.0% in March.
High Yield Corporate Bonds were the Best Performing Asset Class
Market Data as of Week Ending 4/30/2021 unless noted otherwise
Equities
U.S. stock prices were mixed as most of the major indexes reached new highs before retreating on Friday. Several of the largest companies reported better than expected earnings as 86% of companies in the S&P 500 have reported a positive EPS surprise. The quarterly blended earnings growth is more than 45% and is on track for the highest reported measure since 2010. Size was not a material factor during the week, but value stocks clearly outperformed their growth counterparts. Energy, financials, and communication services were the best performing sectors, while information technology and healthcare lagged. Developed foreign stocks in Europe and Asia underperformed U.S stocks and Emerging Market stocks lagged developed foreign markets.
Bonds
U.S. Treasury yields rose as favorable economic data and Fed Chair Jerome Powell reiterated no change to policy rates nor the Fed’s asset purchase program. Most government bonds were in negative territory as the 10-year Treasury ended the week at 1.63%. High yield corporate bonds were the best performing asset class and recorded small gains across short, intermediate, and long-term maturities. Investment grade corporate bonds ended the week yielding 2.2% and high yield corporate bonds are yielding nearly 4.3%.
Macroeconomic Data
Economic data was headlined by first quarter real GDP that showed the U.S. economy grew by more than 6%. Another positive was that U.S. weekly unemployment claims continued to fall as new claims dropped to 553,000, their lowest level since March 2020. In other positive news, the Conference Board’s index of U.S. consumer confidence reached 121.7 in April, which is the highest level since February 2020. Europe reported a 0.6% decline in first-quarter GDP following a 0.7% decline for the fourth quarter. If the early estimate holds, it will be considered a “double-dip” recession for the region that continues to struggle with vaccine distribution and lockdowns from the coronavirus.