Week Ending: February 26, 2021
U.S. equities experienced a choppy week as most indices posted solid losses to close out the month. Investors continue to weigh inflation risks against the improving macro backdrop of ongoing vaccinations, a declining number of coronavirus cases and easy monetary policy. A majority of the volatility was attributed to growing fears among investors that higher inflation and the recent spike in Treasury yields could cause a mass exodus from equities into fixed income. Continuing February’s trend, value stocks outperformed growth stocks by a wide margin as growth stocks logged their worst month versus value since 2000. The energy sector continued its rally as vaccine progress fueled optimism about the reopening of the global economy driving oil prices higher. Consumer discretionary and information technology shares lagged in part by a steep decline in automaker Tesla and Apple. Developed foreign stocks and Emerging Market stocks underperformed U.S stocks as concerns grew that central banks might have to act sooner than expected to quell inflationary pressures that could accompany an economic recovery.
U.S. Treasury yields skyrocketed this past week as the outlook for economic growth has become more promising. The 10-year U.S. Treasury yield reached 1.60% midweek, before ending the week at 1.41%. Investment grade corporate bonds ended the week yielding approximately 2.1% and high yield corporate bonds are yielding over 4.9%.
A full slate of economic data was released last week. Consumer confidence climbed to a three-month high as Americans await stimulus payments and cases continue to decrease. Weekly jobless claims hit their lowest level, 730,000, in three months and recorded their biggest decline since August. Durable goods orders booked their biggest increase in six months, suggesting the economy is gaining steam. Consumer spending jumped 2.4% in January, its first increase in three months, as personal incomes rose by 10.0%. Core inflation rose by 0.3% last month, bringing the PCE price index to 1.5% in the past year. Fourth-quarter German GDP data were revised up unexpectedly to a growth rate of 0.3% from an initial estimate of 0.1% on strong exports and solid construction activity.