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Inflation Data Reduces Investor Sentiment

Market Data as of Week Ending: 7/16/2021 unless noted otherwise

Equities

U.S. stock prices ended the week lower as inflation and growth data appear to have reduced investor sentiment. Analyst expectations for S&P 500 earnings growth increased to 69% as companies begin to report financial results for the second quarter. Large cap companies outperformed their small and mid-cap peers and growth stocks outpaced their value counterparts for the third consecutive week. Defensive sectors such as utilities, consumer staples, and real estate were the best performing sectors and the only sectors to produce gains for the week. Energy was down more than 7%, but remains the top performing sector for the year, followed by declines in the consumer discretionary and materials sectors. 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 declined again as the 10-Year note ended the week at 1.29%, its lowest amount since February. Long-term government bonds were once again the best performing segment while all term structures across high yield corporate bonds lagged. Despite the risk-off environment, investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds are slightly higher than 4.0%.

Macroeconomic Data

Economic data continues to point toward stronger growth but with more inflation than expected. Both the headline and core (excluding food and energy) Consumer Price Indexes (CPI) advanced 0.9% in June. The headline figure was the largest monthly change since June 2008 and is up 5.4% since the same period last year. Core inflation recorded its largest yearly increase (4.5%) since November 1991. Retail sales increased 0.6% in June which was well above consensus expectations and were supported by strong demand in autos, despite the supply-chain disruptions. Diverging approaches to dealing with a new variant of the virus are emerging in Europe as the UK plans to lift all lockdown measures, while France and Netherlands reimpose restrictions. In Asia, China reported second quarter annualized GDP growth that was near consensus estimates at 7.9%.

 

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S&P 500 Index Ended the Week on Another Record High

Market Data as of Week Ending: 7/9/2021 unless noted otherwise

Equities

U.S. stock prices were mixed as the S&P 500 Index ended the week on another record high, while smaller companies, as represented by the Russell 2000 Index, were down. Analyst expectations for S&P 500 earnings growth increased to 64.0% as companies begin to report financial results for the second quarter. Large cap companies outperformed their small and mid-cap peers and growth stocks outpaced their value counterparts for the second consecutive week. Real estate stocks were the best performing sector followed by gains in consumer discretionary, utilities, and information technology sectors. Energy and communication services lagged and were the only two sectors with losses. 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 declined again as the 10-Year note ended the week below 1.40% for the first time since February. All segments of the bond market delivered gains for the week. Long-term government bonds were the best performing segment while short-term high yield corporate bonds lagged. Investment grade corporate bonds ended the week with yields slightly above 2.0% and high yield corporate bonds are yielding approximately 4.0%.

Macroeconomic Data

Economic data continues to point toward growth but were generally weaker than expected. Initial claims for jobless benefits were slightly higher at 373,000 and monthly job openings remain elevated at 9.2 million. The JPM/Markit Global Composite PMI Index declined to 56.6 in June; however, it was still among the highest readings in the past 15 years. In the U.S. both manufacturing and services components fell as goods producers were hindered by supply delays and tight labor market conditions. In Europe, the ECB formally adopted a 2% inflation target and stated that they will use “especially forceful” monetary policy to achieve this goal. In Asia, Tokyo was placed under another coronavirus state of emergency and will not allow spectators to attend the Olympics.

 

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U.S. Treasury Yields Declined to the Lowest Level Since March

Market Data as of Week Ending: 7/2/2021 unless noted otherwise

Equities

U.S. stock prices advanced as the S&P 500 Index ended the week on another record high. Investor sentiment was supported by a combination of mostly positive economic data and a few companies reported better than expected quarterly earnings. Second quarter S&P 500 earnings expectations increased throughout the quarter and analysts are currently forecasting an earnings growth rate of 63.6%. Large cap companies outperformed their small and mid-cap peers and growth stocks outpaced their value counterparts. Sector leadership shifted again this past week as gains were most notable in the information technology, consumer discretionary, and health care sectors. A combination of cyclical and defensive sectors such as energy, financials, utilities, and real estate lagged. 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 declined as the 10-Year note ended the week at 1.42%, which is the lowest level since March. All segments of the bond market delivered gains for the week. Long-term government bonds were the best performing segment while short-term government bonds lagged. Investment grade corporate bonds ended the week with yields slightly above 2.0% and high yield corporate bonds are yielding approximately 4.0%.

Macroeconomic Data

Economic data was favorable and headlined by the significant drop in jobless claims data. Initial claims for jobless benefits fell to a new pandemic of 364,000 as the labor market appears to be on the solid ground for a durable recovery. The Conference Board’s index of consumer confidence improved for the fifth consecutive month and reached its highest level since the pandemic in March 2020. Other notable economic data included the ISM Manufacturing PMI data that came in slightly below expectations but still at a strong number of 60.6 and the S&P/Case-Shiller home prices advanced by nearly 15% through the 12 months ended in April, the largest increase since December 2005. Economic data in Europe has been improving as the IHS Markit’s eurozone purchasing managers’ index (PMI) reached its highest level on record at 63.4 in June.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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