Week Ending: January 22, 2021
U.S. stock prices advanced as the outlook improved for corporate earnings and prospects for a new stimulus from the Biden administration. Despite the near term improvement, S&P 500 earnings are still expected to decline 4.7% for the fourth quarter 2020. Small and medium sized company stocks generally outperformed large company peers and growth stocks outperformed value. Sector performance was led by gains in the communication services, information technology, and consumer discretionary sectors. The remaining eight major economic sectors lagged, most notably the cyclical sectors such as energy, materials, and financials. Developed foreign stocks in Europe and Asia lagged U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
U.S. Treasury yields were mixed this past week (bond prices and yields move in opposite directions) as shorter term yields declined and longer term yields were mostly unchanged. Short duration bonds generally outperformed long 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 and overshadowed by the change in administration. Weekly initial unemployment claims declined, but remain elevated at 900,000, as the labor market struggles to recover this winter. More than 5 million Americans continue to claim ongoing unemployment benefits. Existing-home sales were reported at a seasonally adjusted annual rate of 6.76 million, a 22% increase compared to the same period last year. Lack of supply for existing home sales has been driving prices higher as the inventory is less than two months, the lowest level since 1982. European countries continue to extend coronavirus lockdowns. Germany announced that lockdown restrictions will be in place until February 14. Business activity has been declining throughout the region as lockdowns weighed on the services sector.