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News of Omicron Cause U.S. Stock Prices to Decline

Market Data as of Week Ending: 11/26/2021 unless noted otherwise

Equities

U.S. stock prices declined as news of a new coronavirus variant triggered a shift away from risk assets. The value factor was a positive contributor as those stocks outperformed their growth counterparts and large companies significantly outperformed their small and mid-sized peers. Despite the sharp drop in oil prices at the end of the week, energy stocks were the only sector with a gain for the week. Financials and traditionally defensive sectors such as consumer staples, utilities, real estate, and health care outperformed. Stocks in the information technology, communication services, and consumer discretionary sectors were the worst performing sectors. Developed foreign stocks in Europe and Asia underperformed U.S. stocks and Emerging Market stocks lagged both U.S. and developed foreign stocks.

Bonds

U.S. Treasury yields were choppy, but eventually declined sharply on Friday and the 10-year ended the week at 1.48%. Earlier in the week yields rose as President Biden announced plans to nominate Fed Chair Jerome Powell for a second term and minutes from the most recent FOMC meeting also supported higher yields. However, that sentiment shifted quickly late in the week as news of the Omicron coronavirus variant created an appetite for high quality assets such as U.S. Treasury bonds. Investment grade and high yield corporate bonds declined as spreads widened and they ended the week with yields at 2.3% and 5.2%, respectively.

Macroeconomic Data

Economic data released during the week was generally favorable and headlined by the lowest weekly jobless claims number in more than 50 years. The economy continues to be supported by strong demand for employment. Not only did the weekly jobless claims figure reach a new 50 year low, but it also dropped below 200,000, which is significantly lower than the pre-pandemic average of 218,000 for calendar year 2019. The strong employment situation has bolstered demand for goods which rose 2.2% in the month of October. Supplies have been challenged and new orders for durable goods were softer than expected, down 0.5% despite being up more than 22% compared to the same period one year ago. In Europe, business activity accelerated and inflation signals have been rising but business confidence dropped for the fifth consecutive month in Germany as they look toward a new chancellor Olaf Scholz set to replace Angela Merkel.

 

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U.S. Stocks Mixed on Inflation Concerns and Rising Coronavirus Cases

Market Data as of Week Ending: 11/19/2021 unless noted otherwise

Equities

U.S. stock prices were mixed as investors weighed favorable economic data against inflation concerns and rising coronavirus cases, in some parts of the country. The value factor was a headwind as those stocks lagged their growth counterparts and large companies significantly outperformed their small and mid-sized peers. Performance by economic sector was also mixed, but a strong October retail sales report fueled outsized gains in the consumer discretionary sector. Stocks in the information technology and utilities sectors also outperformed while cyclical sectors such as energy, financials, materials, and industrials were the worst performing sectors. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks reversed course for the week and lagged both U.S. and developed foreign stocks.

Bonds

U.S. Treasury yields fell as the 10-year ended the week at 1.55%. Following the inflation data released last week, treasury markets have pivoted toward pricing in President Biden’s decision on retaining current Fed Chair Jerome Powell or replacing him with Fed Governor Lael Brainard. Government bonds delivered gains across the yield curve and long duration government bonds were the best performing segment. High yield corporate bonds declined as spreads widened and investors sentiment shifted away from risk assets. Investment grade and high yield corporate bonds ended the week with yields slightly higher at 2.3% and 4.9%, respectively.

Macroeconomic Data

Economic data released during the week was generally favorable and headlined by retail sales with a 1.7% gain for the month of October. Supply chains have been challenged in the post-pandemic recovery, but large retailers have reported they have inventory to meet demand for the holidays. Weekly jobless claims continue to trend lower and ended the week at 268,000 and continuing claims have dropped to approximately 2 million. Industrial production also ended the month of October with a solid gain of 1.6% and outperformed consensus expectations. In Europe, the UK reported the highest level of inflation in nearly a decade and several nations formally introduced new measures to contain a wave of coronavirus infections across the continent.

 

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Inflation Surges to Highest Level in 30 Years

Market Data as of Week Ending: 11/12/2021 unless noted otherwise

Equities

U.S. stock prices were mixed as most of the major indexes finished the week with small losses. The decline in investor sentiment was most likely caused by the higher-than-expected inflation data. More than 90% of companies in the S&P 500 have reported third quarter earnings and the growth rate is expected to be above 39%, despite supply and inflation pressures that have constrained growth. The value style factor outperformed growth while size factors were mixed. Nearly half of the major economic sectors were positive, led by notable gains in the materials sector followed by small gains in the health care and industrials sectors. Stocks in the consumer discretionary and energy sectors lagged and were both down more than 1% for the week. Developed foreign stocks in Europe and Asia narrowly underperformed U.S. stocks while Emerging Market stocks delivered a solid gain for the week and outperformed both U.S. and developed foreign stocks.

Bonds

U.S. Treasury yields rose as the 10-year ended the week at 1.56%. The Labor Department reported that inflation increased in October by 6.2%, from the same period one year ago, which is the highest level in more than 30 years. All segments of the bond market were in negative territory. Long duration corporate bonds declined the most and high yield corporate bonds outperformed. Investment grade and high yield corporate bonds ended the week with yields higher at 2.3% and 4.8%, respectively.

Macroeconomic Data

Economic data released during the week was mixed and headlined by the U.S. Labor Department’s inflation data for the month of October. Consensus expectations were an increase of 0.6% for the month, but the figure came in at 0.9% and is causing investors to reassess views on transitory inflation. The core CPI data, which excludes the more volatile food and energy prices, was also higher than expected and increased 0.6% for the month of October. On a year-over-year basis headline, CPI increased 6.2% and core CPI increased 4.6%. The employment situation continues to look favorable with more than 10 million job openings and a record 4.4 million workers left voluntarily, indicating a strong labor market. In Europe, several nations began adopting or considering restrictions to curb a new wave of coronavirus infections on the continent.

 

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Stocks Advance as the Fed Begins Tapering

Market Data as of Week Ending: 11/05/2021 unless noted otherwise

Equities

U.S. stock prices advanced for the fifth consecutive week as gains were supported by favorable economic data and corporate earnings. Nearly 90% of companies in the S&P 500 have reported third quarter earnings and the growth rate is expected to be above 39%, despite supply and inflation pressures that have constrained growth. Small stocks surged during the week and significantly outperformed both their mid and large cap peers while the growth and value style factors were mixed. Nine of the eleven major economic sectors were positive, led by gains in the consumer discretionary, information technology, and materials sectors. Financials and health care lagged and were the only sectors in negative territory for the week. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged both U.S. and developed foreign stocks.

Bonds

U.S. Treasury yields declined with the 10-year ending the week at 1.45%. The Fed announced the widely anticipated decision to begin reducing monthly asset purchases by $15 billion in November. The Fed expects to continue reducing purchases each month by that amount, but reserves the right to adjust the amount based on economic conditions. All segments of the bond market recorded gains for the week and were led by long duration corporate bonds. Long duration government bonds also fared well while short duration bonds lagged. Investment grade and high yield corporate bonds ended the week with yields near 2.2% and 4.7%, respectively.

Macroeconomic Data

Economic data released during the week was mostly positive and headlined by the Fed’s tapering decision and a strong jobs report. The U.S. Labor Department announced that payrolls increased by 531,000 jobs and unemployment dropped to 4.6%. The report was significantly higher than consensus expectations and the prior two months were adjusted higher by 235,000 jobs. The weekly initial jobless claims figure was also encouraging as it fell to 269,000. PMI data from ISM was also positive as the both the services and manufacturing sectors grew for the 17th consecutive month. According to ISM, the Services PMI reached an all-time high of 66.7 percent in October, 4.8 percentage points above the prior month and surpassing the former all-time high of 64.1 percent in July. In Europe, the Bank of England unexpectedly kept interest rates unchanged while ECB president Lagarde reiterated their dovish position by stating that an interest rate hike in 2022 is very unlikely.

 

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Major Indexes Reach New Highs

Market Data as of Week Ending: 10/29/2021 unless noted otherwise

Equities

U.S. stocks were mixed as several major indexes reached new highs and the S&P 500 advanced for the fourth consecutive week. More than half of companies in the S&P 500 have reported quarterly results and many companies are reporting record earnings while citing supply and inflation pressures that have constrained growth. Large stocks outperformed both their mid and small cap peers while growth stocks outperformed their value counterparts for the third week in a row. Consumer discretionary, communication services, and information technology stocks were the top performing sectors. Cyclical sectors such as financials, energy, and industrials lagged and were the only sectors in negative territory for the week. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged developed foreign stocks.

Bonds

U.S. Treasury yields declined with the 10-year ending the week at 1.56%. Most segments of the bond market recorded gains for the week and were led by long duration government bonds. Long duration corporate bonds also fared well while short duration bonds lagged. Investment grade and high yield corporate bonds ended the week with yields near 2.3% and 4.8%, respectively.

Macroeconomic Data

Economic data released during the week was mixed. Economic growth slowed to a seasonally adjusted annual rate of 2.0% in the third quarter. Consumers and business struggled to work through the combination of a new surge of coronavirus cases along with persistent supply constraints and inflation. The Fed’s closely followed Personal Consumption Expenditures (PCE) showed that inflation rose 0.3% in September and 0.2%, excluding food and energy prices. Offsetting some of those price increases have been accelerating wages and benefits, as evidenced by the employment-cost index which rose 1.3% in the quarter which is the fastest pace in more than 20 years. Initial unemployment benefits, decreased for the fourth consecutive week to 281,000 and reached a new pandemic low. Inflation is not unique to the U.S. as European growth accelerated to 2.2% in the quarter, but annual inflation was estimated to be 4.1%, the highest level in 13 years.

 

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