403(b) Curriculum Library

This Week's Market Moves: January 25, 2021

Stock markets continued to grind higher, with the major indices gaining between 0.6% and 4.2% last week. Hopes for additional stimulus from the new Biden administration drove much of the gains; however, concerns about opposition in Congress tempered the market’s optimism. Here are some other insights on the markets and the economy from last week:

U.S. equity markets continued to grind higher, with the NASDAQ and S&P 500 Index rising to record new highs, gaining 4.2% and 1.9% respectively, last week. The Dow Jones Index lagged, only posting a gain of 0.6%. Sector performance of the S&P 500 Index was varied, with communication services and information technology leading the market, and financials and energy lagging.

Small Cap stocks continue to march higher, with the Russell 2000 Index rising another 2.1% this past week. The shift in leadership from Large Cap stocks to Small Cap stocks is notable, with value, growth, and core styles leading by a wide margin. Since the end of the 3rd quarter, the Russell 2000 Index has rallied more than 44%, far outpacing the S&P 500 Index’s 15% gain. Small Caps historically outperform in the early stages of a new economic cycle, so the move is not surprising.

It was a quiet week in the bond market. U.S. government bond yields remained relatively rangebound, with the 10-year Treasury yield ending the week at 1.09%. The yield on the ICE BofA U.S. Corporate Bond Index, which invests primarily in investment grade debt, continued to grind lower, hitting a record low of 1.87%. With rock-bottom yields across almost all fixed income sectors, it does not take much of a move in interest rates to wipe out an entire year’s worth of income.

During the confirmation hearings this week, Janet Yellen, former Fed-Chief and President Biden’s pick for Treasury Secretary, gave some hints about what to expect from the new administration. Yellen endorsed the need for additional stimulus, suggested the Treasury will examine issuing longer-maturity debt, such as a 50-year bond, opened the door to future tax increases, was non-committal on the “strong dollar policy,” and will use economic policy to fight climate change and inequality.

=The labor market continues to struggle amid the pandemic. The latest weekly initial claims report showed 900,000 Americans filed for first time unemployment benefits. Over 5 million American workers are already receiving benefits. Nearly a year into the pandemic, 16 million workers are receiving some form of unemployment assistance from the government. The extent of the nation’s job losses highlights the need for more fiscal relief.

The housing market continues to be one of the bright spots in the pandemic-ravaged economy. According to the National Association of Realtors, home sales rose to their highest level since 2006, up 22% from a year ago. Strong demand for housing saw the median price for an existing home increase 12.9% over the last year. Low mortgage rates and limited supply will likely push house prices higher in the coming quarters.

The resurgent pandemic continues to ravage the euro-area economy, fueling fears that the region could experience a double-dip recession. High frequency indicators, such as travel, retail, hospitality venues, and workplace, have slowed sharply in recent weeks, suggesting that lengthening lockdowns are taking a toll on economic activity again. The European Central Bank’s President, Christine Lagarde, signaled a renewed contraction is likely this week.

The COVID-Tracking Project reported some encouraging trends in the latest weekly update. While the country is by no means out of the woods, there is a chance the latest virus wave has peaked. Not only is the 7-day average of cases down nearly 20% from its January peak, the average weekly hospitalization and death counts also declined modestly. The vaccine rollout and the new restrictions to curb the spread may actually be working.

Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Value: Russell 1000 Value Index, Large Blend: S&P 500 Index, Large Growth: Russell 1000 Growth, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: FTSE NAREIT All Equity, Small Blend: Russell 2000

Should you have additional questions, please contact your Cammack Retirement Group consultant or info@cammackretirement.com. Note that this article was published on January 25, 2021. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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