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Week in Review: February 19, 2021

Recap & Commentary

US equity markets declined as rising interest rates led investors to examine the potential impact on equities, in particular those with elevated valuations. The S&P 500 ended lower for the first time in three weeks and US Treasury yields hit another one-year high. Global oil markets scrambled to temporarily increase production after freezing temperatures in Texas’ Permian Basin forced 40% of the country’s crude output offline.

US Treasury Secretary Janet Yellen called for additional stimulus, rejecting Republican arguments that President Biden’s $1.9T stimulus bill is too much.  She cited concerns about the economic impact of nine million Americans still out of work and another four million who have left the work force altogether.

Coronavirus hospitalizations hit their lowest levels since November, following a 55% decline from their peak in early January. Through Saturday, nearly 13% of the US population had received their first vaccine. Cold weather across the country delayed the shipment of nearly six million doses during the week.

As of Friday, 83% of S&P 500 companies had reported fourth quarter earnings, with 79% beating their consensus estimate. On average, companies are reporting earnings 14.6% above estimates. Currently, fourth quarter earnings are expected to grow 3.2%, an impressive adjustment from the 9% decline estimated at the start of earnings season.

Economic Bullet Points

A busy week for economic data saw retail sales surge 5.3% in January.  That far outpaced the expected gain of 1.1% and was the largest monthly increase since last June, when the economy was just beginning to emerge from widespread lockdowns. Sales benefitted from the passage of $900B of additional stimulus passed in late December which sent $600 checks to millions of Americans at the end of 2020 and early 2021. Reflecting the strong data, the Atlanta Fed’s GDPNow 1Q21 GDP forecast jumped to 9.4%, up from 4.5% a week earlier.

Housing data for the week was mixed, as starts missed expectations, declining 6% from December. One culprit may have been the 73% increase in lumber prices from a year ago. However, permits, a leading indicator of future activity, jumped 10% suggesting that the housing sector will likely remain strong for the time being. Sales of existing homes rose slightly, to an annualized rate of 6.69M. Compared to a year ago, sales were up 23.7%. Over the same time period, inventory has fallen nearly 26% continuing to put upward pressure on prices. Weekly jobless claims rose to 861k, the second weekly increase and nearly 100K more than expected. The data served as a stark reminder of the ongoing challenges facing labor markets.

Producer inflation (PPI) jumped 1.3% in January, the largest monthly increase since 2009. Though the increase does not necessarily portend higher consumer inflation, it bears watching in the coming months.

Of Note

New research showed that the Pfizer/BioNTech COVID-19 vaccine does not need to be stored at ultra-cold temperatures, and that a single dose is 85% effective at preventing symptomatic cases 15 to 28 days after administration.

Market Indices Week of 02/19

S&P 500-0.7%
Small Caps-1.0%
Intl. Developed-0.3%
Intl. Emerging-0.3%
Commodities1.5%
U.S. Bond Market-0.3%
10-Year Treas. Yield1.34%
US Dollar-0.2%
WTI Oil ($/bl)$59
Gold ($/oz)$1,776

The Week Ahead

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

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