Monthly Archives: June 2021
S&P 500 Rallies to Record High as Bipartisan Agreement Boosts Optimism
Market Data as of Week Ending: 6/25/2021 unless noted otherwise
Equities
U.S. stock prices rallied early in the week setting a new high last week, the 33rd of the year. The positive momentum continued after recent bipartisan agreement on an infrastructure package, increasing the likelihood of becoming a law. Ahead of the quarterly earnings season, nearly twice as many companies that have issued guidance prior to their earnings releases raised their expectations compared with the number that lowered their forecasts. Small and mid-cap companies outperformed their larger cap peers and value stocks mostly outpaced growth. The latest sector performance marked a reversal from the prior week as cyclicals such as energy, financials, and industrials outperformed. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields moved higher as investors digested new inflation data and recent hawkish remarks from the FOMC. The 10-Year note rose and ended the week at 1.53%. Long term high yield bonds were the best performing segment while treasury and investment grade corporate bonds were under pressure. Investment grade corporate bonds ended the week with yields slightly above 2.1% and high yield corporate bonds are yielding more than 4.6%.
Macroeconomic Data
Economic data was mostly overshadowed by the infrastructure package, but results were mixed as U.S. manufacturing PMI climbed to a record high of 62.6 while U.S. services PMI retreated from a historical high to 64.8 in June. Durable-goods orders bounced back in May, increasing by 2.3%, signaling broad strength in the economy. Consumer spending was flat in May, coming in below expectations as spending on new cars and trucks has been reduced significantly. Personal incomes declined by 2.0% in May as stimulus money begins to dry up. Core PCE rose 0.4% in May bringing the year over year increase to 3.9%, marking the fastest pace since 2008. European private business activity expanded at the fastest pace in 15 years, mostly driven by the services sector which increased to consensus expectations of 58.0.
Stocks Declined On Concerns About Higher Interest Rates
Market Data as of Week Ending: 6/18/2021 unless noted otherwise
Equities
U.S. stock prices declined as investors responded to concerns about the potential for higher interest rates following the Fed’s policy meeting. Despite language from the Fed that clearly states their intention to “maintain an accommodative stance of monetary policy” until we reach maximum employment and an average of 2% inflation, many investors are focused on the forward-looking guidance which shows higher inflation and an additional rate hike in 2023. Large cap companies outperformed their small and mid-cap peers and value stocks lagged growth. Information technology was the only sector to produce a gain while cyclicals such as energy, financials, and materials lagged. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks outperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields were mixed and volatile with sharp increases following the Fed policy meeting and then the 10-Year note declined and ended the week at 1.44%. Long term government bonds were the best performing segment followed by investment grade corporate bonds. Short term treasury bonds lagged as yields rose sharply and did not retreat. Investment grade corporate bonds ended the week with yields slightly above 2.0% and high yield corporate bonds are yielding more than 4.1%.
Macroeconomic Data
Economic data was mostly overshadowed by the Fed policy meeting, but results were mixed with strong advances in the Producer Price Index (PPI) and lower retail sales. The monthly PPI rose 0.8% and 6.6% compared to the same period last year. Most of the gains were attributed to a 1.5% monthly rise in the prices for goods. Retail sales declined 1.3% last month as consumers begin to make a shift from spending on goods to services in the post pandemic recovery. New housing starts increased to a seasonally adjusted annual rate of 1.57 million which was below consensus expectations of 1.63 million. Inflation is not unique to the U.S. as the U.K. reported a higher than expected 2.1% figure despite still being in a partial coronavirus lockdown. Industrial production in Europe was stronger than expected as countries in the region continue to phase out coronavirus restrictions.
Market Shrugs Off Higher Inflation
Market Data as of Week Ending: 6/11/2021 unless noted otherwise
Equities
U.S. stock prices ended another choppy week with modest gains as a sharp decrease in longer-term bond yields appeared to help push equity markets higher. Interest rates and inflation seemed to dominate sentiment as investors continued to grapple with the uncertainty regarding what the implications will be of continued signs of rising inflationary pressures. Small and mid-cap companies outperformed their larger cap peers while the decline in yields favored growth stocks versus value. Cyclical and defensive sectors were mixed as real estate, health care and consumer discretionary outperformed while financials, materials and consumer staples lagged. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks underperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields fell last week as economic data supported the case for continued accommodative central bank policy. The U.S. 10-Year fell 0.11% to 1.45%. Results were fairly even across bond segments as lower quality bonds outperformed their higher quality counterparts and longer duration outperformed shorter duration. Investment grade corporate bonds ended the week yielding just below 2.1% and high yield corporate bonds are yielding close to 4.7%.
Macroeconomic Data
Economic data was headlined by the core CPI reading which showed that consumer prices rose again, 0.7% in May, pushing the CPI inflation rate to a 13-year high. The NFIB small-business index fell for the first time this year as the labor shortage was cited as holding back growth for small businesses across the country. Jobless claims for the week of June 5th fell to 376,000 which was slightly higher than the expected 370,000. The consumer sentiment index rebounded in June’s preliminary reading, increasing by 3.5 to 86.4, as consumers’ psyches try to weigh rising inflation versus historic job gains. European markets gained in part by the European Central Bank’s (ECB) stance to keep monetary policy unchanged, including its pledge to continue its high rate of bond purchases into the next quarter.
Markets Edge Higher in the Quiet Holiday Week
Market Data as of Week Ending: 6/04/2021 unless noted otherwise
Equities
U.S. stock prices rallied to end the holiday shortened week moderately higher. Analysts continued to increase earnings estimates throughout the second quarter, as Q2 bottom-up EPS estimates increased by 5.8%, marking the largest quarterly increase since FactSet began tracking the metric in 2002. There was no real trend regarding the size of companies, but value stocks edged out their growth counterparts. The energy sector significantly outperformed as OPEC+ remained committed to restraining its supply and an effective COVID-19 vaccination rollout within the U.S. and Europe drove oil prices higher. 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 experienced a volatile week as the 10-Year U.S. treasury hit its highest level since mid-May before ending the week 4bps lower at 1.56%. Results were fairly even across bond segments as lower quality bonds outperformed their higher quality counterparts and longer duration outperformed shorter duration. Investment grade corporate bonds ended the week yielding nearly 2.2% and high yield corporate bonds are yielding close to 4.8%.
Macroeconomic Data
Economic data was slightly mixed last week as the closely watched monthly U.S. jobs report came in slightly below the forecasted 650,000. The ISM manufacturing index ticked up to 61.2% in May, better than the expected 60.5%. The service side of the economy continues its massive rebound as Americans rush to do all the things they couldn’t during the pandemic. The ISM services index came in at 62.7%, slightly off its record high set last month, as labor and supply shortages act as a slight drag. The U.S. unemployment rate ticked down slightly to 5.8% in May from 6.1% the previous month. Japan continues to see a rebound in household spending as it rose by 13.0% year over year in April after a 6.2% rise in March as consumers sought out beauty treatments, dining, accommodation, and domestic tourism packages. This was the largest increase since data became available in January 2001.
May Ends on a Positive Note With Inflation Concerns on the Backburner
Market Data as of Week Ending: 5/28/2021 unless noted otherwise
Equities
U.S. stock prices were positive last week as inflation concerns subsided slightly allowing the S&P 500 to seek out a small gain for the month. May was the sixth positive month out of the past seven for the S&P 500. With first quarter earnings exceeding expectations by record numbers, analysts have continued to revise their numbers higher, with 2021 earnings now expected to grow 34% from 22% at the start of the year. Smaller cap companies outperformed their larger cap peers, and for the second week in a row, growth stocks edged out their value counterparts. Cyclical and sensitive sectors such as consumer discretionary, industrials, and communication services were among the best performing sectors, while traditional defensive sectors such as consumer staples, health care, and utilities 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 remained calm as the 10-year Treasury yield nudged two basis points lower amid a rise in bond prices, ending the week at 1.60%. Results were fairly even across bond segments as lower quality bonds outperformed their higher quality counterparts and longer duration outperformed shorter duration. 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 sent conflicting signals last week. The consumer confidence index fell for the first time in six months on inflationary concerns, slipping to 117.2 in May from 117.5 last month. U.S. unemployment claims fell to a new pandemic low of 406,000 as layoffs wane. Durable goods orders fell by -1.3% in April as the computer-chip shortage impacted the transportation sector. Personal incomes fell 13.1% last month in the absence of further federal support. Consumer spending slowed, rising 0.5% in April, as Americans kept a sizable amount of savings on hand. The economic outlook in Europe became more positive as Germany’s Ifo Business Climate Index rose to a two-year high of 99.2 in April, indicating increasing optimism around the state of Europe’s largest economy.