High Yield Bonds were the Best Performing Asset Class

Market Data as of Week Ending 3/26/2021 unless noted otherwise.

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.

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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