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Market Commentary for the week ending January 30th, 2021
- Stock markets around the world sold off leaving the S&P 500 and Dow Industrials negative for the year.
- A flood earnings reports were overshadowed by concerns of potential economic slowdown and more.
- Home prices accelerated late in 2020 although there are signs this could be slowing.
This Week’s Performance Highlights
- Stocks prices dropped sharply for the week with large U.S. stocks, measured by the S&P 500, down -3.4% while the Dow Industrials helped up fractionally better and the NASDAQ Composite lost a fraction more. Year-to-date the S&P 500 is down -1.0%, the Dow Industrials are off -2.0%, and the NASDAQ is holding onto a gain of +1.4%.
- This week’s selloff was widespread with every sector declining. Investor favored the more conservative groups such as utilities and consumer staples, both still down but only by -1.1% and -1.5% respectively, while others such as energy and financials lost -6.5% and -4.6%.
- Small U.S. stocks fared worst than large down -4.4% but are still higher for the year by +4.9%.
- International stocks performed similar to those in U.S. with developed country stocks down -3.7%. Emerging markets performed worse, off -4.5%, but much like small U.S. stocks are still higher for the by +3.2%.
- Real estate stocks held up relatively well this week down just -1.2% and off -0.2% for the year. This group remains nearly -20% off its 2020 all-time highs while the S&P 500 is less than -4% from it record high a week ago.
- Gold lost just -0.7% for the week holding up better than nearly all other investments which is often the case during broad market selloffs. Commodities prices were actually higher by +1.1% adding to their year-to-date gain of +4.7%. Among the various commodities, silver was one of the biggest winners gaining +12.6% for the week and has surged +59% since the start of 2020 just 13 months ago.
- Bond prices overall posted a small +0.1% gain with the yield on the U.S. 10-Year Treasury closing slightly lower at 1.072%. The Federal Reserve, as expected, reaffirmed its policy of easy money and intent to keep interest rates.
Actively managed mutual funds suffered a record $289 billion of outflows continuing a decade-long trend as investors and advisors embrace lower cost index funds and exchange-traded funds (ETFs). American Funds, Dimensional Fund Advisors, and T. Rowe Price were among the mutual funds companies experiencing the biggest losses Vanguard, BlackRock, and State Street Global Advisors were among the recipients of sizeable fund inflows.
Margin debt, or the total amount of money borrowed by investors via their investment portfolio, has surged +62% from its recent low last March to a record high $778 billion. Low interest rates are helping fuel this borrowing boom which in turn is one driver of added speculation in the market.
The U.S. economy, Gross Domestic Product (GDP), grew at an annualized rate of +4.0% during the fourth quarter as it continues to recovery from the pandemic shutdown. This was slower growth than had been hoped for due to the record wave of COVID cases sweeping the country. Although the headline GDP number was a bit of a disappointment, there were bright spots including business spending on equipment jumped +25% and investments in new housing surged +33.5%.
For the year the economy contracted by -3.5% making it the worst year since 1946. Looking forward there continues to be optimism as the country continues to reopen with economists surveyed by the Wall Street Journal forecasting a slowed first quarter, as illustrated below, followed by a pickup in growth for the remainder of the year.
Source: www.WSJ.com survey of more than 60 economists
Durable Good Orders, orders for such things as tools, appliances, and new cars, increased by +0.2% in December making this the eighth consecutive monthly improvement. Although December’s gain was below economists’ forecast, much of that was due to the volatile transportation sector.
The housing market continues to be red hot with the S&P Case-Shiller Home Price Index accelerating in the most recent month up +9.5% year-over-year. The price gains were geographically broad with 19 of the 20 largest cities showing gains (Detroit did not report due to data collection issues related to COVID). There are signs that the demand for homes is slowing from the 2020 summer highs due in part to mortgage rates inching higher but inventories remain very low which should help keep prices up.
Consumer Confidence edged higher to an index reading of 89.3 from 87.1 the month before. Digging into the details of the report shows that people’s view of the current economic environment worsened while the expectations over the next 6 months jumped sharply on expectations of wider access to vaccines that will drive continued growth of the economy.
New Home Sales grew by +1.6% in December to an annualized rate of 842,000 homes. Geographically though it was a mixed bag with the Midwest seeing a +30.6% jump while numbers in South and Northeast were down. Bigger picture sales where higher by +15% for the year.
Upcoming Economic Reports
- Employment Report
- Factory Orders
- ISM Manufacturing Index
- ISM Services Index
- Motor Vehicle Sales