Friday, March 26, 2021
U.S. and International Equities
Major United States markets were mixed this week. U.S. small caps (Russell 2000 Index) have been the worst performing index for two straight weeks while emerging market equities (MSCI EM) also lost ground. Real estate and consumer staples were the top performing sectors whereas consumer discretionary and communication services lost ground this week.
Stock valuations are higher globally
The S&P 500 Index forward price-to-earnings ratio (PE) is at over 21 and presently 35% above its 10-year average. Looking at the developed international markets, the PE for the MSCI EAFE Index is 17, which is 23% above its long-term average. The story is the same for emerging markets (EM) equities, with the MSCI Emerging Markets (EM) Index PE over 14, 27% above its long-term average. Despite the recent rise in interest rates, LPL Research continues to believe low interest rate levels support elevated valuations globally.
Fixed Income Recap
Bonds, as represented by the Bloomberg Barclays US Aggregate, gained ground this week as the 10-year Treasury yield moved lower. Many other bond sectors also moved in tandem, as investors took advantage of lower bond prices.
After a strong year thus far, West Texas Intermediate (WTI) Crude Oil sold off for the third straight week. In addition, natural gas recovered after a two week selloff. Moreover, the major metals, gold, silver and copper, ended lower this week.
“This week, investors witnessed a modest drop in long-term Treasury yields, which helped support equity prices just a bit,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “However, some general consolidation in the major equity indices has continued, and weakness in small-caps and technology persisted.”
US Economic Data Recap
Conference Board’s Leading Economic Index Tepid
The Conference Board’s Leading Economic Index (LEI) increased 0.2% month over month in February. February’s gains in the LEI were generally broad-based among their indicators. While this suggests future economic growth ahead, the LEI fell short of expectations.
US Home Sales Falter in February
Sales of new homes last month fell over 15%, but they remained higher than February 2020. Poor weather was blamed for the drop in home sales. Higher rates could be a culprit, but given tight inventories and demographics, the market should remain solid.
Jobless Claims Beat Estimates
This week jobless claims beat estimates as over 680,000 Americans filed for unemployment. This was better than the Bloomberg consensus forecast of 730,000 and the lowest level since pre-COVID 19. In addition continuing claims fell to over 3.8 million vs. the Bloomberg consensus of over 4 million.
Next week, the following economic data is slated to be released:
- Tuesday: January S&P/Case-Schiller Home Price Index, March Consumer Confidence
- Wednesday: February pending home sales
- Thursday: Weekly initial and continuing claims, March Institute for Supply Management Manufacturing index, February construction spending
- Friday: March domestic auto sales, March labor statistics and payroll data, March unemployment report
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