Week Ending: January 15, 2021
U.S. stock prices were mixed as President-elect Joe Biden announced his plans for a $1.9 trillion stimulus package and President Trump was impeached for a second time by the House of Representatives. S&P 500 earnings have improved, but are still expected to decline 6.8% for the fourth quarter 2020. Small and medium sized company stocks outperformed large company peers and value stocks generally outperformed growth. Sector performance was mixed as energy maintained a leadership position along with gains in the real estate, utilities, and financials sectors. The communication services, information technology, consumer discretionary, and consumer staples sectors lagged. Developed foreign stocks in Europe and Asia narrowly lagged U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields declined this past week (bond prices and yields move in opposite directions) as investors balance the expectation of additional government spending with the duration of the economic recovery. Longer duration bonds generally outperformed short duration peers and investment grade corporate bonds were the best performing asset class. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield (below investment grade) corporate bonds are yielding more than 4%.
Economic data released during the week were generally worse than expected. Weekly initial unemployment claims increased to 965,000, the highest level in more than five months, and more than 5 million Americans continue to claim ongoing unemployment benefits. Retail sales declined 0.7% in December, which was the third consecutive monthly decline after revisions. Germany reported preliminary data that the economy contracted 5.0% in 2020, which was better than expected. The Bank of Japan reported that the economy was improving, despite the recent coronavirus cases.