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Weekly Market Recap

Last week was a strong one for risk assets as it became increasingly clear that while highly contagious, the omicron variant is very likely to cause a lower rate of serious disease and death than previous strains of the coronavirus.

Most bond prices fell as the Treasury curve experienced significant bear steepening: 2y yields rose 6bp, 10y yields were up 14bp, and 30y yield finished higher by 21bp.

Credit spreads compressed, particularly in high yield, echoing the move higher in equities.

Commodity prices also moved higher last week, with oil gaining more than $5/barrel.

Economic news was mostly positive:

* Weekly unemployment claims fell below pre-pandemic levels

* Consumer price inflation, while high, was in line with consensus estimates

* U of Michigan consumer sentiment rose in preliminary December data

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

Last week was a strong one for risk assets as it became increasingly clear that while highly contagious, the omicron variant is very likely to cause a lower rate of serious disease and death than previous strains of the coronavirus.

Most bond prices fell as the Treasury curve experienced significant bear steepening: 2y yields rose 6bp, 10y yields were up 14bp, and 30y yield finished higher by 21bp.

Credit spreads compressed, particularly in high yield, echoing the move higher in equities.

Commodity prices also moved higher last week, with oil gaining more than $5/barrel.

Economic news was mostly positive:

* Weekly unemployment claims fell below pre-pandemic levels

* Consumer price inflation, while high, was in line with consensus estimates

* U of Michigan consumer sentiment rose in preliminary December data

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

Risk assets were whipsawed last week by shifting sentiment around omicron and US monetarily policy. While it is increasingly clear that omicron is already widespread in the US, there is growing optimism that existing vaccines will provide protection against severe disease and death, AND that omicron may be more likely to cause milder cases of covid-19 in the first place. Meanwhile, Fed Chair Jerome Powell’s pivot towards inflation fighting has cooled some investors’ appetite for stocks, sending most US benchmarks lower. Traditional defensive sectors held up the best last week, with only utilities and real estate registering small gains.

Treasury investors responded to Powell’s hawkish turn by flattening the yield curve, under the assumption that more aggressive inflation-fighting in the near term should mean lower inflation and bond yields in the long term. Fed Fund futures are now pricing in ~2.5 rate hikes by the end of 2022. Meanwhile, investment grade credit spreads widened slightly to 95bp, equaling their widest level of the year, while high yield spreads moved in the opposite direction after having widened dramatically when omicron was first reported the day after Thanksgiving.

The BLS released its monthly payroll report. The change in nonfarm payrolls of +210k missed expectations, but all other aspects of the report were encouraging:

* U-3 Unemployment fell to 4.2%

* U-6 Underemployment fell to 7.8%

* Labor Force Participation rose to 61.8%

* Y/Y Growth in Avg Hourly Earnings cooled to 4.8%

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

News of the omicron variant sent stocks tumbling on Friday, pushing all major equity indices into the red for the week. The Nasdaq was the worst performer, as concerns about rising rates had dented longer-duration growth stocks even before Friday’s move. Small and midcap stocks underperformed large caps, while international stock underperformed the US.

In a classic flight-to-safety trade, US Treasuries rallied as yields fell and the curve flattened. Credit spreads widened, particularly in high yield where bond prices fell in sympathy with equities. Investment grade corporate bonds and high quality munis were close to flat on the week thanks to the offsetting moves in rates and spreads.

Commodity prices plunged on Friday, particularly oil which endured its largest oneday selloff since the early days of the pandemic last year. US benchmark West Texas Intermediate fell more than $10/barrel to close at $68.15, while non-energy commodities were off a more modest ~2% in aggregate. See the Chart of the Week for a time series of oil prices.

Apart from concerns regarding the omicron variant, economic news was mostly positive last week. Initial jobless claims fell below 200k for the first time since the onset of the pandemic, while the University of Michigan Consumer Sentiment index rose slightly more than expected in the final November print.

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

Most US equity indices finished the week slightly lower, due in large part to a higher-than-expected consumer price inflation (CPI) print for the month of October. Core inflation (ex food and energy) rose to 4.6% y/y, while headline inflation exceeded 6% for the first time since 1990. See the Chart of the Week for a time series of headline and core CPI.

Sector performance was mixed: basic materials (+2.6%) significantly outperformed, and four other sectors (healthcare, industrials, financials, and tech) finished with positive returns on the week. Other sectors finished lower on the week, with energy (-1.3%) and consumer discretionary (-3.2%) trailing by the widest margin. International stocks were mixed, with MSCI’s developed market index easing lower while its emerging markets index posted solid gains due to strength in Chinese equities.

Bond yields moved higher in the wake of the inflation print, particularly in the front end and belly of the curve: 2y and 10y yields both rose 11bp on the week, while 30y yields were up a more modest 4bp. Credit spreads were mostly stable, passing the price declines in Treasuries through to higher quality corporate bonds.

Commodity markets were mixed last week. Energy prices eased lower, while prices rose on many other commodities, including wheat, corn, copper, and gold.

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

Tapering is upon us at last. In a move that surprised no one, the US Federal Reserve announced on Wednesday that it would begin tapering its monthly purchases of Treasuries and MBS by approximately $15 billion per month, beginning immediately. Given the previous run rate of $120 billion per month, it would take 8 months for the tapering process to finish if done in linear fashion, meaning that the Fed’s asset purchase program would reach $0 in new purchases in June of 2022.

In other news, Friday’s payroll report exceeded expectations for job growth with 531k nonfarm payrolls added. The unemployment rate sank to 4.6% while underemployment dropped to 8.3%, both of which are new pandemic lows.

US stocks rallied in response to the news flow, with all three major US large cap indices finishing the week at all-time record highs. Small and midcap stocks were up even more sharply following the jobs report. International equities were mixed, with D/M higher while E/M in aggregate was flat.

Bond markets wobbled in the immediate aftermath of the tapering announcement but soon joined stocks in rally mode, with yields falling across the curve. Credit spreads remained stable as investment grade corporates clawed their way back very close to breakeven on the year.

Inflation-sensitive assets were mixed last week: oil prices fell, gold prices rose, and bitcoin finished lower.

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

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Weekly Market Recap

Large cap technology stocks led the market higher last week thanks in large part to stellar earnings results from tech bellwethers like Alphabet (Google) and Microsoft. The rally pushed the Dow, S&P 500, and Nasdaq Composite to fresh record highs on the final day of October, with the S&P and Nasdaq both delivering a return of over 7% for the month. Cyclicals lagged somewhat as inflation concerns eased and energy prices edged lower. Meanwhile, international stocks were mixed, with developed markets close to flat while emerging markets were once again pulled lower by a selloff in Chinese equities.

Growth stocks also got a boost from falling Treasury yields last week. The curve flattened considerably, with 2y yields hitting 50bp (+5bp on the week) while 10y yields fell 8bp and 30y yields were lower by 14bp. Fed funds futures markets are now pricing in a >75% chance of a rate hike occurring by June of 2022, much earlier than current consensus expectations from sell side economists.

Not all of the news was good last week, however. Q3 GDP came in lower than expected at +2.0% annualized, while Apple and Amazon both missed consensus earnings estimates, citing severe supply chain constraints that impacted revenues as well as input cost inflation that put pressure on operating margins. Starbucks also cited a 600bp impact to operating margins from rising wages and other inflationary pressures. As a result of these and other reports, sell side analysts have already begun lowering their earnings estimates for the balance of the year.

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Weekly Market Recap

News regarding the pandemic was positive last week. Covid-19 case counts continued to fall in the US and globally, and on Thursday the FDA and CDC jointly announced new recommendations that made nearly 100 million Americans immediately eligible for a vaccine booster shot. All Americans aged 65 or older that originally received a 2-course regimen of either the Pfizer/BioNTech or Moderna vaccines are eligible, as are those aged 18-64 that either live in a long-term care facility, have underlying medical conditions that increase risk of severe disease, or live or work in settings that carry a high risk of virus transmission. In addition, all Americans aged 18 or older that received the single-shot Johnson & Johnson vaccine at least two months ago are eligible for a booster immediately.

Meanwhile, Q3 earnings season continued with a slew of strong results. With nearly a quarter of S&P 500 companies now having reported Q3 numbers, 84% of the results so far have beaten consensus earnings estimates, while 75% have beaten on top line revenues.

Against this positive backdrop for the economy, stocks rose for the 3rd week in a row, with the S&P 500 and the Dow closing at new all-time highs on Thursday and Friday, respectively. Rates moved higher, particularly on the front end of the curve as markets priced in a higher probability of a rate hike by the end of next year. Lastly, energy and other commodity prices rose, sending the Bloomberg Commodity Index to its highest level in more than six years. 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” and subscribe!
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Weekly Market Recap

Equities rallied around the world last week as Q3 earnings season got underway, with several of the large US banks reporting strong trading results and record M&A deal flow. Gains in large cap stocks pushed the S&P and Dow back to within 1.5% of their all-time highs from early September, while the Nasdaq remains roughly 3% off of its highs. International markets also finished higher, but remain well behind the US on a YTD basis.

Bond prices rose last week thanks to a flattening of the US Treasury yield curve. 2y yields rose to 39 basis points as investors priced in a higher probability of multiple rate hikes occurring at some point in 2022/23, while 10y and 30y yields fell as longer-term inflation fears eased slightly. Investment grade credit spreads were stable.

Oil prices rose again last week, with US crude benchmark West Texas Intermediate closing at a fresh 7-year high of $82.28/barrel. Natural gas prices eased back slightly but remain very high relative to recent years.

Inflation data was mixed last week, with CPI slightly exceeding consensus expectations while PPI was lower than feared. Meanwhile, jobless claims fell for the second straight week after rising throughout September. Finally, the University of Michigan’s Consumer Sentiment Index softened slightly in the preliminary October reading, with weakness in both current conditions and future expectations. On the positive side, however, 5-10 year inflation expectations eased lower and appear to be well anchored around price stability.

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

Last week’s biggest news was Senate Republicans offering (and Democrats accepting) an agreement to raise the US national debt ceiling by $480 billion, eliminating the near term risk of a technical default on US Treasuries and giving Democrats time to pass a budget reconciliation bill with a new debt ceiling limit that would alleviate the risk until sometime after the 2022 midterm elections.

Stocks rallied on the news, with cyclicals outperforming while defensives lagged. The energy sector was a standpoint performer with a 5.0% return on the week. International stocks were higher, particularly emerging markets which benefitted from a strong rebound in Chinese equities on Thursday and Friday.

Bond yields also moved higher in the wake of the debt ceiling agreement. 10y Treasuries finished the week at 1.61%, the highest level since early June. IG spreads were largely unchanged while HY spreads tightened. Energy prices rose again last week. US benchmark West Texas Intermediate finished at a 7-year high, just shy of $80/barrel. The move in crude sent gasoline prices to fresh multi-year highs as well. Meanwhile, natural gas hit a 14-year high on Tuesday before easing back in the latter half of the week.

Finally, the monthly payroll report from the Bureau of Labor Statistics missed expectations with 194k nonfarm payrolls added versus consensus estimates of 500k, calling into question whether the Fed will announce asset purchase tapering at its upcoming meeting in early November.

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