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2020 Financial Markets Update

Week in Review: February 12, 2021

February 16, 2021

Recap & Commentary

Equity markets enjoyed a positive week as investors remained encouraged by vaccine rollout progress and positive earnings reports. A record weekly inflow of $58B into global equity funds also helped boost returns. The S&P 500 closed Friday at yet another record-high, led by energy, as oil prices gained 5% during the week. New record highs were not isolated just to the US. In China, the blue-chip CSI 300 index, set a new record high for the first time in 13 years, while in Japan, the Nikkei 225, reached its highest level since 1990.

In Washington, the House passed a spending bill consisting of $1,400 stimulus checks for individuals making less than $100K, and married couples making less than $200K. With the conclusion of former President Trump’s second impeachment trial, the Senate will be able to take up the bill when Congress returns from its scheduled recess next week.

As the vaccine rollout continues, it is estimated that 11% of the US population has received their first shot and 4% has received their second. The Biden administration announced it secured an additional 200 million doses from Pfizer and Moderna. Along with the 400 million doses ordered by the Trump administration, the US will now have enough doses for its entire population.

Through Friday, 74% of S&P 500 companies had reported fourth quarter earnings, with 80% beating their consensus estimate. On average, companies are reporting earnings 15.1% above estimates. Currently, fourth quarter earnings are expected to grow 2.9%, a marked reversal from the expected 9% decline estimated at the start of earnings season.

Economic Bullet Points

Despite a growing chorus from economists about the likelihood of rising inflation, thus far it has failed to materialize. At the headline level, consumer prices rose 0.2% in January, inline with expectations and 0.1% faster than December’s 0.3% pace. Compared to a year earlier, prices rose just 1.4%. Core prices, which the Fed pays closer attention to with respect to monetary policy, were actually flat for the month. Economists had been expecting a 0.2% increase. Compared to a year earlier, core inflation rose just 1.4%, slower than the 1.6% increase recorded in December. As the year progresses, inflation may well rise closer to 2.0%, given the lower “comps” from 2020.  For now, however, it remains well contained.

Consumer sentiment pulled back slightly in early February, driven by those earning less than $75K/year. The decline came despite $900B of additional stimulus passed in late December, and expectations for an addition $1.9T to be passed soon. Among lower income households, just 23% reported improved finances, whereas 54% of higher-income households reported improved finances.

Weekly jobless claims registered at 793k, down 19k from the prior week, but nearly 40k higher than expected. In a slightly optimistic sign, job openings in December rose more than expected, suggesting perhaps that employers are preparing for an uptick in business activity as vaccine efforts progress.

Of Note

Yields on “high yield” bonds fell below 4.0% for the first time ever. Meanwhile, the 30-Year Treasury yield rose above 2.0% for the first time in nearly a year.

Market Indices Week of 02/12

S&P 5001.2%
Small Caps2.5%
Intl. Developed2.1%
Intl. Emerging2.4%
U.S. Bond Market-0.1%
10-Year Treas. Yield1.21%
US Dollar-0.7%
WTI Oil ($/bl)$60
Gold ($/oz)$1,822

The Week Ahead

  • Retail Sales
  • Housing Starts
  • Existing Home Sales
  • Industrial Production
  • Weekly Jobless Claims
  • Producer Inflation (PPI)

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