Weekly Market Performance – Markets Take Senate Surprise in Stride
Posted by lplresearch
US and International Equities
This week, we gained clarity on the makeup of Congress with the Georgia US Senate runoff. Democrats will now have control of both chambers of Congress, though with only a razor-thin majority.
“There have been some concerns about stocks given a blue wave,” explained LPL Research Chief Market Strategist Ryan Detrick. “Actually, stocks have done well with this scenario.”
In fact, the S&P 500 Index gained 6 out of the past 7 times this occurred, with the only loss being 1994, where the S&P 500 Index pulled back modestly.
The major market indexes finished higher this week, with the Nasdaq leading the S&P 500 along with the Dow Jones Industrials. Moreover, international markets enjoyed a solid week. Emerging markets (MSCI EM Index) outperformed their developed international counterparts (MSCI EAFE Index), however both indexes returned over 3%.
Energy, materials, and financials were the standout sectors, while real estate, consumer staples, communication services and utilities lagged the benchmark S&P 500 this week.
Please take a look at the LPL Research Blog, Equity Winners and Losers in 2020 for a recap of last year’s stock market performance.
Energy Powers Forward
Energy started the new year on solid footing, returning over 9% this week and bringing the sector’s three month return to over 38%—erasing much of 2020’s losses that at one point reached 50%. As discussed below, the energy sector has been the beneficiary of higher crude prices, with price of West Texas Intermediate back over $50 a barrel for the first time since the pandemic began.
Small Cap Strength Resumes
Last week, small caps, as represented by the Russell 2000, broke their streak of three consecutive weekly gains and lagged the major market indexes. This week, small caps reversed course, outperforming all broad market indexes and continued their run from the fourth quarter of last year. As of Thursday, January 7, 2021, the Russell 2000 index has returned just over 30% for the past three months.
Fixed Income, Currencies, and Commodities
Bonds, as represented by the Bloomberg Barclays US Aggregate, finished the first full week of 2021 lower as the 10-year Treasury yield broke through 1% convincingly with a more than 0.2% increase. Moreover, most bond sectors traded in lockstep with the 10-year Treasury and Bloomberg Barclays US Aggregate.
Commodities across the board were mixed. Oil rebounded this week, reversing two consecutive down weeks, to finish the week above $50, moving toward or above the marginal costs for many producers. Natural Gas reversed last week’s losses and returned over 5% this week. Copper had a solid week, returning over 4%, whereas gold and silver finished lower.
2020 Bond Recap
As is the case with equities, last year was a tale of two completely distinct return periods for bonds—the first ending on March 23 and the second covering the rest of the year. Credit-sensitive bond sectors bounced back strongly after March 23, narrowing the performance gap with US Treasuries at year’s end. In addition, the most rate-sensitive bond sectors still tended to outperform over the year while providing increased diversification. For more of our additional thoughts on last year’s fixed income market, please read the LPL Research post Two Tales of 2020 Bond Returns.
US Economic Data Recap
Jobless Claims Beat For Third Consecutive Week
The United States reported over 787,000 weekly claims for unemployment insurance through January 2, 2021. These came in below the FactSet consensus estimates of over 800,000 (source: US Department of Labor). In addition, continuing claims beat estimates, with 5.1 million Americans still on unemployment insurance versus the estimate of 5.2 million. The ongoing threat of COVID-19 has increased the fragility of the job recovery in the very short term, though additional stimulus strengthens the bridge to the end of the pandemic.
The US economy lost 140,000 jobs in December, according to the US Bureau of Labor Statistics. This missed the Bloomberg survey estimates for a 50,000 gain. This represents the first monthly loss since the jobs market began its recovery in May 2020. In addition, December’s unemployment rate held steady at 6.7%.
The Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) showed that manufacturing surprisingly soared in December. The number came in at 60.7, tied for the second highest reading of the past 15 years and above 50 (the level for an expansion) for seven consecutive months. We’ve found that manufacturing leads earnings, and this is another positive sign for earnings growth in 2021. The manufacturing economy continues to impress in the wake of the pandemic.
Next week, the following economic data is slated to be released:
On Tuesday, we get the December National Federation of Independent Business Small Business Index and the November JOLTS Job Openings.
Wednesday is all about December’s CPI and Treasury Budget as well as hourly earnings and average workweek data for December and the Fed’s Beige Book.
Thursday provides investors another weekly initial unemployment claims report. Moreover, we also receive data on December export/import prices.
On Friday, we receive data on December PPI, retail sales, industrial production, and November business inventories along with January’s Michigan Sentiment.
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