Week Ending: January 8, 2021
Despite the chaos at our nation’s Capitol, U.S. stock prices advanced as several major indexes ended the week on record highs. Earnings expectations improved throughout the quarter and into the new year. However, S&P 500 earnings are still expected to decline -8.8% 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 stocks rotated into a leadership position and were up more than 9%. The materials, financials, and consumer discretionary sectors outperformed, whereas defensive sectors such as real estate, utilities, and consumer staples lagged. Developed foreign stocks in Europe and Asia outperformed U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields increased this past week (bond prices and yields move in opposite directions) as the democratic candidates won both Senate seats in Georgia and effectively control both houses of Congress. Long-term yields increased to their highest levels since March of last year as the 10 year U.S. Treasury note rose 0.20%. Longer duration bonds lagged short duration peers and high yield (below investment grade) corporate bonds were the best performing asset class. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield corporate bonds are yielding more than 4%.
Economic data released during the week were mixed but largely overshadowed by the Senate runoff in Georgia and turmoil in Washington. Employers cut 140,000 jobs in December, ending seven months of job growth as new coronavirus cases pose challenges for a sustainable recovery. Weekly initial unemployment claims were unchanged at 787,000 and more than 5 million Americans continue to claim ongoing unemployment benefits. Germany reported better than expected industrial production and trade data in November, meanwhile Italy seeks more than EUR 200 billion from the EU’s coronavirus emergency fund.