Market Moves: January 19, 2021

Weaker than expected economic data and concerns about the lingering virus weighed on stock prices, with the major U.S. benchmarks closing lower last week. While the market initially cheered the prospect of more fiscal stimulus, stock prices were not able to sustain the rally in the wake of a disappointing retail sales report. Here are some other insights on the markets and the economy from last week:

U.S. stocks, which have been driven by the prospect of further stimulus from the Biden administration and the continued promise of highly accommodative Central Bank policy, succumbed to a steady steam of disappointing economic news this past week, with the S&P 500 Index down 0.9%. Seven of the 11 sectors of the S&P 500 closed lower. Energy stocks led this week, rising 3.2%. Communication Services stocks, which include tech giants Alphabet (Google), Facebook, and Netflix, lagged, falling 3.6%.

Interest rates have continued to make some notable moves this year, with the 10-year Treasury climbing as high as 1.18% mid-week, before closing the week at 1.08% after a successful debt auction. The sharp rise in longer-maturity Treasuries has been driven by market speculation that the new Biden administration will push for more stimulus to support the recovery, after Democrats won control of the Senate following the Georgia run-off elections. The move has also been fueled by several Fed officials openly entertaining the possibility that the Fed could begin to taper its asset purchases as early as the end of 2021. However, Fed Chairman Powell calmed investor jitters towards week’s end.

Margin debt, which refers to the amount of money borrowed against a stock portfolio to speculate on the market, has soared to record levels in recent weeks, as investors chase ever-increasing stock returns. At the same time, there has been a surge in equity options trading. These signals are typically strong indicators of over-confidence in the market, as investors fear more about missing out on potential market gains than they do of losing money.

The latest reading of inflation showed consumer prices increased 1.4% on an annualized basis. This was smaller than the 2.3% increase at the end of 2019. The core measure, which excludes food and energy prices, held steady at 1.6% for the third month in a row. While inflation measures are lower than they were a year ago, the key question for the financial markets is where is inflation headed in 2021?

Jobless claims rose by nearly 1 million, a sharp increase from last week’s level. Continuing claims, which reflect the number of Americans currently receiving unemployment benefits, also rose unexpectedly to nearly 5.3 million. The spike in claims data highlights the toll that the continued spread of the virus and the measures taken to contain it is having on the economy.

The NFIB Small Business Optimism Index dropped to a six-month low in December, with nine of the ten index components declining. The sharp decline suggests that small businesses are concerned about the outlook for sales and business conditions in 2021, particularly given the recent surge in virus infections and renewed restrictions on businesses. This is notable as small businesses create two-thirds of new jobs and account for over 40% of U.S. economic activity.

Consumer spending slowed in the final months of the year, but surprisingly remains above its pre-pandemic levels. The unexpected decline in the December report suggests the surge in virus infections is taking a toll on economic activity. Looking at the composition of spending, several key categories (i.e., online merchants, food and drinking establishments, and department stores) showed sharp declines.

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

*Note that High Yield, Foreign Equities and Emerging Markets are as of 1/18/21; others are as of 1/15/21.

Should you have additional questions, please contact your Cammack Retirement Group consultant or Note that this article was published on January 11, 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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