Friday, March 12, 2021
US and International Equities
All major United States and international markets were positive this week. US small caps, as denoted by the Russell 2000 Index, had the best performance, returning over 7% this week. Small caps continue to be this year’s standout sector, returning over 19% year-to-date.
All Sectors Green This Week
In a rare showing, all sectors across the board finished the week higher. The materials, utilities, consumer discretionary, and real estate sectors were standouts. Consumer discretionary stocks rebounded nicely considering they were major detractors for the previous two weeks of market activity. The top performing sectors year-to-date continue to be energy as well as the financials.
“This week there appears to have been pause in the classic sector style rotation that we have seen this year,” explains LPL Research Senior Vice President Marc Zabicki. “We believe it is indeed a pause and not signs of a reversal of what has been a prevailing trend.”
Fixed Income Recap
Bonds, as represented by the Bloomberg Barclays US Aggregate, gained marginal ground this week as the 10-year Treasury yield moved a fraction lower. Many other bond sectors also moved in tandem, as investors took advantage of lower prices following the February selloff. High yield municipal bonds, as denoted by the Bloomberg Barclays Municipal Bond Index, enjoyed a solid week.
Rising Interest Rates are a Global Phenomenon
Similar to the United States’ story of increasing growth and inflation expectations, non-U.S. interest rates have started to move higher. Higher rates reflect increased growth expectations, but if rates rise too quickly or get too high they could impact the global economic recovery. Countries that were more aggressive in virus containment and vaccine deployment have seen the largest increase in yields this year. The United States, Canada, and Germany haven’t seen yields fully retrace their pandemic declines, suggesting those yields could continue to rise to previous levels as further vaccine deployment takes place.
After a strong year so far, West Texas Intermediate (WTI) Crude Oil gave back some ground this week. Natural gas also pulled back. The major metals, gold, copper and silver, recovered marginally this week. Metals with industrial uses, copper and silver, are up over 60% for the rolling one year whereas the primary precious metal, gold, is only 11% higher. LPL Research currently is positive on industrial metals and neutral on precious metals.
US and Global Economic Data Recap
Small Business Optimism Rises
The National Federation of Independent Business’ (NFIB) Small Business Optimism Index rose modestly last month. February’s reading, which was below the consensus of 97, was the first advance after three monthly declines. The NFIB report showed some concern about a tightening job market and anticipation of increased price pressures, both signs of a recovering economy but also potentially new challenges. At the same time, muted sales and profit growth expectations limited the overall index’s improvement.
Global Growth Expectations Catch Up with an Improving Economic Landscape
The Organization for Economic Co-operation and Development (OECD) increased its 2021 gross domestic product (GDP) growth forecast for the United States by more than 3 percentage points to a solid 6.5%. Growth in euro area GDP, which saw a much more modest increase (+0.3%) due to ongoing COVID-19 restrictions and slow vaccine distribution, is expected to fall short of 4%. China’s forecast was little changed at a very strong 7.8%, while India’s growth forecast, at over 12%, saw the largest increase.
Inflationary Pressure Benign
The Consumer Price Index (CPI) increased slightly in February which was in line with Bloomberg consensus expectations and only slightly higher than January. Core CPI, which controls for food and energy prices, rose a fraction month over month and below the Bloomberg forecast. Despite weather-related disruptions and rising activity, inflationary pressures appear well contained.
Jobless Claims Decline Modestly
Applications for U.S. jobless claims fell more than expected last week to the lowest since early November 2020. Over 710,000 Americans filed for unemployment insurance versus Bloomberg consensus forecasts of 725,000. In addition, continuing claims fell to 4.1 million, below the Bloomberg consensus forecast of 4.2 million.
Next week, the following economic data is slated to be released:
- On Tuesday, we get data on export and import prices. In addition, February retail sales, capacity utilization, industrial and manufacturing data will be published. Moreover, the National Association of Home Builders’ March Housing Index will be published.
- Wednesday is all about the Fed as the Federal Reserve Open Market Committee (FOMC) meets. In addition, we will receive data on last month’s housing starts and building permits.
- Thursday provides investors with another weekly initial unemployment claims report. In addition, February’s leading indicators will be published.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All market and index data comes from FactSet and MarketWatch.
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