There wasn’t a lot of market moving news this week, apparently a positive sign for investors as global equities drifted higher nearly the entire week. The rally was broad-based as far as geographies and themes, encompassing both developed and emerging markets, as well as a variety of thematics like value, growth, momentum, and reflation / cyclicals. US Treasury yields cooperated and were little changed on the week until Friday, when yields ticked a few basis points higher. Fed Chairman Powell spoke to a House subcommittee on Tuesday and seemed to say all the right things this time, because the market did not flinch following his testimony. President Biden’s greatly reduced infrastructure plan ($1.2 trillion over eight years vs initial plan of $2.2 trillion) also appears to have bipartisan support, although he also said that he would not sign the bill without most of the rest of his largely social agenda being presented to him for signature via the reconciliation process (meaning without Republican support). I am still unclear exactly how this will unfold as far as timing, but this announcement caused equity investors to tilt gently back towards reflation / cyclical stocks towards the end of the week. I thought this article in Smartasset.com provided a good synopsis of the non-partisan infrastructure plan.
All of the global indices I track were positive this past week, with the S&P 500 delivering the best W-o-W return (+2.7%) and the Nikkei 225 the worst (+0.4% W-o-W). Europe has been the best performing market so far this year (STOXX 600 +14,7% YtD), not surprising perhaps given that the various European bourses – as I mentioned some months back – were a better relative value play simply because they were so much cheaper than their US counterparts.
Amongst the US indices, all were solidly positive with the best relative performer being the the Russell 2000 (+4.3% W-o-W), followed by the DJIA (+3.4% W-o-W), as value and reflation / cyclicals reclaimed centre stage from high flying momentum stocks after several weeks of outperformance by the NASDAQ.
The most relevant company / sector specific news Stateside included strong 4Q21 results by NKE and the about-on-target results from FDX, both released on Thursday after the market close. Both companies are considered important economic barometers of the global economy. In addition, the Federal Reserve gave the “all clear” on Thursday for 23 major banks – all of which passed the latest round of stress tests – to resume stock buybacks and dividend payments starting in July. You can find the Federal Reserve’s press release here. Bank stocks rallied on Friday following this news (XLF +1.21% Friday).
In the US Treasury bond market, yields ticked up across maturities this week with most of the uptick coming on Friday. However, the increase was orderly, not enough to unsettle equity markets as attention was focused elsewhere much of the week. US economic data towards the end of the week was mixed and did not reignite concerns regarding inflation even as yields pushed higher. Jerome Powell addressed the House Select Committee on the Coronavirus Crisis on Tuesday to discuss the policies of the Federal Reserve – “Lessons Learned: The Federal Reserve’s Response to the Coronavirus Pandemic”. Fortunately, Mr Powell said nothing that surprised investors. Below is an update for US Treasuries.
Yields in the investment grade and high yield corporate bond market were slightly lower this week, as credit continues to be well bid.
As far as safe haven assets, gold strengthened slightly this week, closing at $1,779.78/ounce (+0.9% W-o-W). Perhaps not surprisingly, the USD weakened (–0.6%) following strong gains the week before, as did the Yen. WTI oil remained firmly above $70/bbl, closing the week at $73.99/bbl (+3.5% W-o-W and +52.5% YtD). BTC bounced off its early week lows but then drifted lower for the rest of the week, now at $32,082 at the time I am writing this update (–10.3% W-o-W).
Cryptocurrencies continue to get battered with the entire market encountering periodic waves of selling pressure for reasons that are not entirely clear.
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