US equities were mostly lower last week. Among large caps, a few sectors managed to finish in positive territory, including traditional defensives like communications (+0.5%), healthcare (+0.4%), and consumer staples (+0.4%).

The worst performing sector by far was energy (-7.7%), driven by falling oil prices and flagging demand as much of Europe institutes new lockdown measures to combat rising covid-19 case counts. See the Chart of the Week for a time series of YTD returns for the energy sector vs. the S&P 500.

Rates markets also continue to be in focus. After briefly stabilizing somewhat during the prior week, US Treasury yields resumed their upward march last week, with benchmark 10y yields rising 10 basis points and the 2s10s curve reaching its steepest level (+157bp) in more than five years. Credit spreads compressed slightly, but not by enough to offset the rate move, driving small price declines in USD-denominated bond markets.

Economic data was mixed last week, with retail sales (-3.3% m/m ex autos & gas), industrial production (-2.2% m/m), and housing activity (-200k bldg. permits m/m) all coming in below expectations, while jobless claims were steady. On a more positive note, the Conference Boards Index of Leading Economic Indicators (LEI) improved sequentially for the 10th consecutive month. Most importantly, the Fed reiterated its commitment to keeping interest rates low and maintaining asset purchases until substantial further progress has been made towards full employment.