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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.

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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.

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Health Care and Real Estate Sectors Netted Solid Gains

Market Data as of Week Ending: 4/23/2021 unless noted otherwise

 Equities

U.S. stock markets retreated slightly from their record highs in an up-and-down week after news of a potential tax hike was released. The proposal would nearly double the long-term capital gains tax rate and raise taxes on higher incomes. First quarter earnings season continues to be off to an outstanding start as 25% of companies in the S&P 500 have reported results, of those, 84% have reported a positive EPS surprise. Medium and small sized companies outperformed their large company peers while growth stocks mostly outperformed value. Health Care and Real Estate were bright spots as both sectors netted solid gains. Energy continued its pullback as oil prices declined on the news of increasing global COVID-19 cases. Emerging Market stocks outperformed both the developed foreign stock market and U.S stock market as the index booked a positive gain.

Bonds

U.S. Treasury yields continued their decline last week as concerns around the global uptick in COVID-19 cases may have stoked demand for safe haven assets. The 10-year Treasury ended the week at 1.56%. Investment grade corporate bonds ended the week yielding 2.2% and high yield corporate bonds are yielding just above 4.8%.

Macroeconomic Data

It was a relatively light economic data week, but what was released was generally positive. U.S. weekly unemployment claims continued to fall as new claims dipped to 574,000, their lowest level since March 2020. The index of U.S. leading economic indicators rose 1.3% in March, suggesting the economy is gathering momentum. The flash reading of the IHS Markit data showed positive results as both the manufacturing PMI and services PMI reached record levels. New home sales surged past expectations as sales occurred at a seasonally adjusted rate of 1.021 million in March, its fastest pace since 2006. As expected, the ECB announced it’s keeping borrowing costs low, saying it would maintain its pace of bond purchases until the eurozone’s economy is firmly on the path to recovery.

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Major Indices Surged to Record Highs for a Third Straight Week

Market Data as of Week Ending 4/16/2021 unless noted otherwise

Equities
U.S. stock markets continued their rally last week, notching gains for a third-straight week as most of the major indices surged to record highs. Earnings season kicked off last week on positive note as corporate profits for several mega and regional banks comfortably exceeded estimates. S&P 500 earnings are expected to grow almost 25% in the first quarter, the strongest growth rate since 2018. Medium and large sized companies outperformed their small company peers while growth stocks outperformed value. Gains in Materials and Health Care were met with some softness in Information Technology and Industrials. Developed foreign stocks in Europe and Asia outperformed U.S stocks and Emerging Market stocks, as the index traded near record highs.

Bonds
U.S. Treasury yields declined last week as the 10-year Treasury finished 9bps lower at 1.57%, its lowest level in nearly a month. Long duration government bonds were the best performing asset class while 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 just over 2.2% and high yield corporate bonds are yielding just below 4.8%.

Macroeconomic Data
Economic data released during the week was generally positive. The NFIB small-business index rose to a pandemic-high of 98.2 in March, reflecting growing optimism among small-business owners. U.S. consumer prices surged in March as the CPI jumped 0.6%, pushing inflation to 2.6% over the past year. U.S. unemployment claims sank by 193,000 to a pandemic low of 576,000 in early April. Retail sales rose nearly 10% in March, the second largest gain on record, as the new round of stimulus checks helped boost spending. Economic data from China continues to be positive as the country announced an 18.3% rise in first-quarter GDP on a year-over-year basis – its largest quarterly growth rate on record.

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U.S. Stock Markets Surged to Record Highs Last Week

Market Data as of Week Ending: 4/9/2021 unless noted otherwise

Equities
U.S. stock markets surged to record highs last week as the bullish theme of robust economic and earnings growth in 2021 remains intact. Investors rotated into quality consumer and tech companies from reopening themes as Treasury yields came under some pressure making growth companies more attractive. Small and medium sized companies lagged their large company peers while value stocks underperformed growth. Sectors that tend to be more cyclical and sensitive such as consumer discretionary and information technology outperformed with gains in each sector. Energy lagged the broader market as oil prices fell after OPEC+ announced it would start to gradually increase supplies later this spring. 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 slightly and ended the week at 1.66% as COVID-19 uncertainties persist and the Fed reaffirmed their accommodative stance. Long duration high yield bonds were the best performing asset class while 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 just over 4.8%.

 

Macroeconomic Data
Economic data released during the week was mixed but was overall more positive as several key reports surprised to the upside. The U.S. service economy surged in March with the ISM survey jumping to 63.7%, as Americans gained more confidence to go out. U.S payrolls increased the most since August as the Labor Department reported that employers added 916,000 jobs in March, well above the estimated 650,000. Jobless claims, however, increased for the second consecutive week as the total filed through the states was 744,000 last week. The producer price index rose 1% in March, the largest annual increase since 2011. Economic data from China’s Qingming holiday weekend resembled pre-pandemic levels as box office and cinema admissions set new records.

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U.S. Treasury Yields Rose, and the 10-year Finished the Week at 1.72%

Market Data as of Week Ending 4/2/2021 unless noted otherwise.

Equities
U.S. stock prices rose over the holiday shortened week as President Biden’s announcement of the infrastructure plan helped buoy financial markets and the focus shifted from rising rates to economic and earnings optimism. Once passed, the bill should help keep U.S. economic growth above trend for longer than previously expected. Small and medium sized companies generally outperformed their large company peers and growth stocks outperformed value. The communication services, consumer discretionary, and information technology sectors were the best performing sectors. Consumer staples, health care, energy, and materials lagged the broader market and ended the week with small losses. Developed foreign stocks in Europe and Asia underperformed U.S stocks and Emerging Market stocks outperformed developed foreign markets.

Bonds
U.S. Treasury yields rose, and the 10-year finished the week at 1.72%. Longer duration bond yields declined, and investment grade corporate bonds were the best performing asset class. Intermediate-term government bonds were the worst performing asset class. Investment grade corporate bonds ended the week yielding nearly 2.3% and high yield corporate bonds are yielding more than 4.3%.

Macroeconomic Data
Economic data released during the week were mixed. Consumer confidence rose to 109.7 in March, surging to a one-year high as more Americans got vaccinated and the most recent round of stimulus checks hit bank accounts. New unemployment claims rose to 719,000 in late March but is expected to being falling again when the economy continues to reopen. The ISM manufacturing index reach a 38-year high of 64.7 in March as U.S. manufacturers continue to gain momentum. The U.S. added 916,000 jobs in March, bringing the unemployment rate down to 6.0%. Despite continued vaccine rollout challenges and widened lockdown measures in some EU countries, core eurozone government bond yields increased over the week.

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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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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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