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Weekly Market Recap

Weekly Market Recap – August 20, 2021Download

US equities started strong on Monday and finished strong on Friday, but the 3 days in between were challenging and left all major US indices in the red for the week. Escalating covid-19 case counts in the US and potential trade disruptions from new lockdowns in China caused investors to reign in risk. Among US large caps, the biggest casualty was the energy sector which fell 7%. Traditional defensive sectors rallied, including utilities, healthcare, and real estate. Small and midcap stocks underperformed, as they often do when risk aversion rises.

International markets continue to be dominated by China. Driven by the twin concerns of rising regulation and slowing economic growth, the MSCI China Index finished at YTD lows after falling 7.7% on the week, and is now down nearly 33% from its February highs. See the Chart of the Week for a time series.

Bond markets were mixed last week. Treasuries rallied and credit spreads widened, driving price gains in safer bonds and declines in riskier ones. Oil prices fell sharply for the second consecutive week, and are now down nearly 17% from the highs of mid-July.

Economic news was mixed last week. On the positive side, jobless claims fell, industrial production and new residential building permits rose, and the Conference Board’s Leading Economic Index (LEI) posted a solid gain for the 5th consecutive month. On the other hand, housing starts and retail sales both dropped more than economists expected in July data.


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Weekly Market Recap

Weekly Market Recap – August 13, 2021Download

Last week saw solid gains in the S&P 500 and the Dow, both of which closed at new all-time record highs on Friday. The Nasdaq pulled back slightly, driven in part by some mid-week softness in biotech. Small and midcap stocks were mixed.

Internationally, most developed market equities were stronger, while emerging market equities in aggregate were lower. Chinese stocks rallied early in the week, only to be met by renewed selling pressure on regulatory fears as the week progressed. MSCI’s China Index finished the week essentially unchanged.

Bond yields moved higher early in the week before falling abruptly on Friday in the wake of a significant decline in the University of Michigan’s consumer sentiment gauge. In the end, 10y and 30y Treasury yields both finished the week 2 basis points lower than where they started. Investment grade credit spreads held firm, while high yield spreads moved wider.

Economic data was plentiful last week:

* The JOLTS report showed more than 10 million US job openings

* Headline CPI held steady at +5.4% y/y (+4.3% ex food and energy)

* PPI rose to +7.8% y/y (+6.2% ex food and energy)

* Initial jobless claims fell for a 3rd straight week, to 375k

* U of M Consumer Sentiment fell to 70.2 in August, a new pandemic-era low

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Second Quarter 2021 – Quarterly Letter

Quarter Letter Q2 2021Download

Read all archived copies of the quarterly letter in our Learning Center

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Weekly Market Recap

Weekly Market Recap – August 6, 2021Download

Equities moved modestly higher around the world last week, with gains in the 1% range across market caps and geographies. A steeper yield curve benefitted financials, which delivered the best return amongst S&P 500 sectors at +3.6% on the week. All other sectors finished in positive territory with the exception of consumer staples, which was used as a source of funds by investors adding risk.

Bond markets were weaker, particularly after Friday’s stronger-than-expected monthly payrolls report. Yields moved higher across the curve, with the 10-year rising 8 bp on the week. Investment grade credit spreads were stable, while high yield spreads compressed, muting the price decline in riskier corporate bonds.

Oil prices moved lower last week on concerns regarding slowing demand from China. Precious metals were also lower. Meanwhile, natural gas prices rose on elevated demand for cooling products, and US gasoline pump prices rose to a fresh 6-year high thanks to a busy summer driving season.

Economic news was dominated by the monthly nonfarm payrolls report for July, which was strong across the board:

* Nonfarm payrolls = +943k (est. +870k)

* U-3 Unemployment Rate = 5.4% (est. 5.7%)

* U-6 Underemployment Rate = 9.2% (est. 9.8%)

* Avg hourly earnings y/y = +4.0% (est. +3.9%)

* Labor force participation = 61.7% (prev. 61.6%)


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Weekly Market Recap

Weekly Market Recap – July 30, 2021Download

Large cap indices finished lower last week, although performance was quite mixed across sectors. Amazon fell 9% on the week after issuing a revenue forecast that disappointed investors, dragging the consumer discretionary sector to a return of -2.6%. Cyclicals like basic materials (+2.8%), energy (+1.7%), and finance (+0.8%) outperformed, as did domestic small and midcap stocks.

International equity markets were dominated by China last week, as a crackdown on the for-profit education sector led to widespread selling of Chinese stocks early in the week. By Tuesday’s close, the MSCI China Index was down more than 31% from its February peak, but later rose >5% after Beijing regulators sought to reassure investors that the selloff was overdone.

Bonds rallied as Treasury yields fell despite a modest shift in the Fed’s language around asset purchases. 10y yields fell 6bp to 1.22%, just a few basis points above mid-July lows. Investment grade credit spreads were stable while high yield spreads drifted wider, muting the gains in bonds from riskier borrowers.

Bitcoin got a significant boost from news that Amazon had posted a job opening for a director of cryptocurrency strategy, finishing above $40k for the first time since May’s dramatic selloff.

Q2 US GDP growth came in at +6.5% annualized versus consensus of +8.4%. The miss was driven by supply constraints that impacted inventories and net trade. Final demand remained strong as consumer spending rose +11.8% annualized.


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Weekly Market Recap

Weekly Market Recap – July 23, 2021Download

Equities bounced back last week despite surging covid-19 cases in many parts of the world. Large cap technology stocks led the way, allowing the Nasdaq to post a 2.8% total return on the week. Most cyclical and defensive sectors were also higher, although energy and utilities both finished slightly in the red during a week of significant oil price volatility. As has been the case for much of 2021, emerging market equities struggled, reflecting the increased health risk of the delta variant in many developing countries with low vaccination rates.

Bond prices also moved higher last week despite the strong gains in equities. Treasuries managed to eke out a small rally with 10y yields falling 1 basis point, while credit spreads remained stable.

Energy prices endured a week of high volatility. Oil fell by more than $5/barrel on Monday after OPEC+ reached an agreement to increase production in August. However, prices rose during each of the ensuing four trading sessions to finish the week largely unchanged.

Economic news was mixed last week. Housing starts rose in fresh June data, but new residential building permits fell. New jobless claims unexpectedly ticked higher, while continuing claims were steady. Markit’s US Manufacturing PMI improved sequentially and exceeded expectations in the preliminary July reading, but the Services and Composite PMIs unexpected fell. Finally, the Conference Board’s Leading Economic Index increased 0.7% sequentially in June, the 4th consecutive month of very strong improvement.




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Weekly Market Recap

Weekly Market Recap – July 23, 2021Download

Equities bounced back last week despite surging covid-19 cases in many parts of the world. Large cap technology stocks led the way, allowing the Nasdaq to post a 2.8% total return on the week. Most cyclical and defensive sectors were also higher, although energy and utilities both finished slightly in the red during a week of significant oil price volatility. As has been the case for much of 2021, emerging market equities struggled, reflecting the increased health risk of the delta variant in many developing countries with low vaccination rates.

Bond prices also moved higher last week despite the strong gains in equities. Treasuries managed to eke out a small rally with 10y yields falling 1 basis point, while credit spreads remained stable.

Energy prices endured a week of high volatility. Oil fell by more than $5/barrel on Monday after OPEC+ reached an agreement to increase production in August. However, prices rose during each of the ensuing four trading sessions to finish the week largely unchanged.

Economic news was mixed last week. Housing starts rose in fresh June data, but new residential building permits fell. New jobless claims unexpectedly ticked higher, while continuing claims were steady. Markit’s US Manufacturing PMI improved sequentially and exceeded expectations in the preliminary July reading, but the Services and Composite PMIs unexpected fell. Finally, the Conference Board’s Leading Economic Index increased 0.7% sequentially in June, the 4th consecutive month of very strong improvement.




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Weekly Market Recap

Weekly Market Recap – July 16, 2021Download

Last week was a challenging one for most risk assets, as investors recalibrated their global growth expectations in the face of the rapidly spreading delta variant of SARS-CoV-2. In the US, large cap stocks were mostly lower, with only traditional defensives like utilities (+2.6%) , staples (+1.3%), and real estate (+0.7%) registering small gains. Cyclicals (particularly energy) came under selling pressure, as did small and midcap companies. International stocks were mixed, with developed markets lower on the week while E/M finished higher.

US Treasuries were treated as a safe haven, sending yields lower and bond prices higher. 10y and 30y Treasury yields both fell 7 basis points on the week, pushing the 2s10s curve to 107 basis points, the lowest since mid-February.

After touching a new pandemic-era high on Tuesday, oil prices fell on Wednesday and Thursday, finishing the week at 1-month lows.

Economic data was mixed. In encouraging news, Empire Manufacturing was very strong, retail sales were up sequentially, and weekly jobless claims continue to trend lower. Conversely, the Philly Fed’s monthly business outlook declined, the University of Michigan’s Consumer Comfort gauge was down, and inflation data (CPI and PPI) for June came in higher than expected, with headline CPI reaching +5.4% y/y while core CPI was +4.5%. As was the case in the previous two months, most of the drivers of above-trend inflation appear to be transitory factors related to the reopening of the economy.

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Weekly Market Recap

Weekly Market Recap – July 9, 2021Download

Large cap US equities moved higher last week, with the S&P 500, Dow, and Nasdaq all closing at fresh all-time highs on Friday. Most sectors finished the week higher, although financials and energy were dragged lower by the flatter yield curve and lower oil prices, respectively. Small and midcap stocks underperformed, as did international equities, as investors kept a keen eye on the rise of new cases caused by the delta variant.

Bond markets rallied yet again last week, with 10y Treasury yields falling 6 basis points to finish at 1.36%, while 30y yields finished the week just slightly below 2%. After tightening relentlessly all year, credit spreads showed the first hint of widening last week, although they remain extremely tight by historical measures. Nevertheless, last week’s modest widening resulted in corporate bonds underperforming Treasuries and Munis.

Energy prices finished the week slightly lower on concerns regarding global demand and a lack of consensus on production from OPEC+.

Economic news got off to a weak start last week with a significant miss in the ISM Services Index, which initially sent equity prices and bond yields lower. Later in the week, however, there were fresh signs of labor market strength, as the monthly JOLTS report held steady at 9.2 million jobs available, while jobless claims continued to drift lower.

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Weekly Market Recap

Weekly Market Recap – June 25, 2021 [ PDF ]Download

Equities were higher across the board last week, as market participants became more comfortable with the prospect of a first rate hike taking place sometime in late 2022. All sectors of the S&P 500 posted gains, led by cyclicals including energy (+6.7%), financials (+5.3%), and industrials (+3.1%). Defensive sectors lagged the rally, including healthcare, consumer staples, real estate, and utilities.

As often happens during cyclical rallies, small and midcap stocks performed very well, with the S&P Midcap 400 and the Russell 2000 both up more than 4% on the week. International stocks were higher too, but generally by smaller amounts relative to the US.

As odds of a 2022 rate hike rose, bond markets reacted by pushing yields higher across the curve: 2y Treasuries reached 27bp (highest since March 2020), 10y yields rose 8bp to 1.52%, and 30y yields were higher by 14bp to finish at 2.15%.

Economic news was mixed last week. New and existing home sales declined as affordability impacted transaction volumes; new jet aircraft orders buoyed durable goods orders; jobless claims ticked lower; consumer sentiment slipped according to U. of Michigan; and the Core PCE Deflator the Fed’s preferred inflation gauge) registered +3.4% y/y in May. See the Chart of the Week for a time series.

This audio version of the Weekly Market Recap can be found in your favorite podcasting app. Search for “Albion Financial Group“