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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“
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ESG Investing

Albion Senior Portfolio Manager Michael Kessler delivers our ongoing thinking on ESG investing. He shares observations on the growing popularity of this investment style, from millennial investors to institutions and hedge funds. WATCH the video to learn about recent David-versus-Goliath boardroom drama at Exxon Mobile.

LISTEN to the audio version of the presentation.

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Weekly Market Recap

Weekly Market Recap – June 18, 2021Download

The FOMC meeting and its aftermath dominated the newsflow last week. As expected, there were no changes to the Fed Funds rate, and no specific indications as to when the Fed may begin to taper its asset purchase programs. However, changes to the “dot plot” (the annual rate forecasts from Fed policymakers) were interpreted by the market as a hawkish signal, as was confirmation from Fed Chair Jerome Powell that FOMC members were at least beginning to discuss the prospect of tapering.

Market participants collectively concluded that a rate hiking cycle may begin sooner than previously expected, and longer term inflation expectations fell. The result was a significant rotation trade away from cyclicals, commodities, and small/mid cap equities, all of which stood to benefit from stronger near-term growth, and towards assets that benefit from lower long-term inflation assumptions, including technology stocks and long-dated bonds.

As a result of these changes in assumptions, the Nasdaq outperformed the Dow by more than 3%, while small and midcap indices had their worst week of 2021. Meanwhile, the Treasury yield curve flattened significantly: 2y yields rose to 25bp (their highest level in more than a year), 10y yields were very close to unchanged, and 30y yields fell 13bp to 2.01% (their lowest level since February). This flattening was especially hard on bank stocks, which fell more than 8% on average last week after peaking in early June.

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Weekly Market Recap

Weekly Market Recap – June 11, 2021 [ PDF ]Download

Last week’s biggest headline was consumer price inflation (CPI) which registered +5.0% y/y in May, the first “five-handle” US inflation print in nearly 13 years. Under the covers, however, the report was less alarming. Core CPI, which strips out volatile food and energy prices, was just +3.8% y/y.

Moreover, more than half of the total came from just six components associated with the release of pent-up demand: food away from home, lodging, airfares, rental cars, used cars, and vehicle insurance.

Markets paid attention to these details, and as a result, inflation-sensitive asset classes rallied last week. Equities were led by technology stocks, many of which have long-dated cash flows that are especially sensitive to discount rate assumptions. The return of tech leadership in equities dates to mid-May, shortly after the previous month’s CPI report which showed similarly transitory drivers underneath an upside headline surprise.

Bond markets also rallied, as 10y Treasury yields fell 10 basis points to 1.45%, their lowest level since early March when rates were still rising quickly. Credit spreads were stable, pushing corporate and muni bonds prices higher (and yields lower) in sync with Treasuries. Mortgage rates also fell last week.

Most commodities traded in a narrow range as inflation fears eased. That said, oil ticked higher by approximately $1/barrel, pushing WTI above $70 for the first time since the outset of the pandemic.

Weekly Market Recap – June 11, 2021 [ MP3 ]Download
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Weekly Market Recap

Weekly Market Recap – June 4th, 2021 [ PDF ]Download

Prices rose across several asset classes last week, including domestic equities, international equities, bonds, and commodities. US large cap indices added roughly half of a percent to their 2021 performance, led by energy stocks. All sectors in the S&P 500 finished higher except consumer discretionary and healthcare. Meanwhile, international stocks outpaced the US, particularly in emerging markets.

Bond markets also rallied last week as yields moved lower. Benchmark 10-year US Treasury yields fell 4 basis point to 1.55%, while 30-year yields were down 5 basis points to finish at 2.23%. Credit spreads were steady, allowing muni and corporate bond prices to rise along with Treasuries.

Energy prices surged to new pandemic-era highs last week. Brent crude closed above $70/barrel for the first time in two years, while West Texas Intermediate finished slightly below $70.

Friday’s monthly jobs report came in slightly below consensus expectations, but still improved sequentially from April’s disappointing result:

  • Nonfarm payrolls = +559k in May (revised April figure is +278k)
  • Unemployment rate = 5.8% (down from 6.1% in April)
  • Underemployment rate = 10.2% (down from 10.4% in April)
  • Labor force participation rate = 61.6% (down slightly from 61.7% in April)
  • Average hourly earnings = +0.5% sequential growth
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Weekly Market Recap

Weekly-Market-Recap-2021-05-28Download

Risk assets of all stripes were higher last week, as US economic data continued to point towards a strong recovery while inflation fears eased a bit. Technology and cyclical stocks saw the strongest demand, while investors pared back their exposure to traditional defensives like real estate, consumer staples, and healthcare. International stocks were higher, with emerging markets outperforming developed markets on increased risk appetite.

Treasury yields fell across the curve despite the risk-on market tone, with benchmark 10y yields lower by 3bp while 30y yields fell 4bp. Meanwhile, corporate credit spreads compressed to their tightest levels since 2007, with the average spread on the Bloomberg/Barclays US Credit Index closing at 79bp. See the Chart of the Week for a time series.

Most commodity prices rose, with oil setting a new pandemic-era high on Thursday before easing back slightly on Friday.

Economic news in the US was mostly positive. Double-digit home price appreciation continued across most of the country, with signs emerging that affordability is beginning to impact transaction volumes. Consumer confidence measures held steady at healthy levels in May, jobless claims continued to trend lower, and durable goods orders (excluding the volatile transportation component) were higher.

Weekly-Market-Audio-2021-05-28Download

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Weekly Market Recap

Weekly Market Recap 2021-05-21Download

Weekly Recap:
Equities were mixed last week. In the US, traditional defensives rose,
including real estate, healthcare, and utilities. Technology stocks were mixed, while cyclically sensitive sectors were lower. Small and midcap indices were also down on the week, while major international indices finished higher.

Despite some day to day volatility, bond markets finished close to where
they started. Benchmark 10y US Treasury yields ended the week 1bp lower,
while 30y yields fell 2bp on the week. Investment grade credit spreads were
stable, keep corporate and muni bond prices essentially unchanged.

After setting a new pandemic-era high during the previous week, oil pulled
back on concerns that supply from Iran could return to the market if
sanctions are eased.

Cryptocurrency markets experienced wild price swings coupled with service outages at multiple exchanges after China signaled it would increase
regulatory oversight of crypto mining. Bitcoin finished the week down by
nearly 30%, and extended the selloff over the weekend.

Forward-looking economic news was positive: residential building permits
remained strong, initial jobless claims fell to fresh pandemic lows, and the
Conference Board’s Index of Leading Economic Indicators (LEI) rose to an all-time high on a y/y basis. See the Chart of the Week for a time series

Albion’s “Four Pillars”:

*Economy & Earnings – GDP growth was +6.4% annualized in Q1 2021, and is forecast to accelerate to +8.1% in Q2. Meanwhile, EPS for the S&P 500 turned positive y/y in Q4 2020 and will rise significantly y/y in Q1 2021 as the economy laps the onset of the pandemic.

*Equity Valuation – the S&P 500’s forward P/E of 22x is above the historical average, and long-term valuation metrics like CAPE (cyclically adjusted P/E ratio) suggest that compound annual returns over the coming decade are likely to be in the single digits. That said, lower equity returns may be justified in the context of ultra-low yields on alternatives like bonds and cash.

*Interest Rates – Rates remain low by historical standards despite recent
volatility, supporting equity valuations and lowering borrowing costs.

*Inflation – After staving off deflation early in the pandemic, the Fed has
communicated tolerance for short periods of above-target inflation. A
cyclical bump in inflation may occur in 2021 as pent-up demand is released, testing the Fed’s resolve, but we do not expect higher inflation to persist.

Weekly-Market-Recap-2021-05-21Download