Overview: Stocks around the world were higher last week, led by emerging markets (MSCI EM), up 2.6%. Here in the U.S., the S&P 500 Index was up 2% over the past week, as markets anticipate another round of fiscal stimulus and a more responsive U.S. administration in combatting COVID-19. In bonds, the U.S. 10-year Treasury ended the week at a yield of 1.09%, up from 0.92% at the start of the year. Economic news was mixed, as strong housing data was offset by a higher-than-expected initial jobless claims number of 900,000. U.S. unemployment benefit filings remain well above the pre-pandemic peak of 695,000.
This week: We have a calendar full of public company earnings this week, to go along with a plethora of economic data including personal income and consumption, durable goods, consumer confidence, and new and pending home sales. Tuesday and Wednesday marks the first meeting of the year for the Federal Open Market Committee (FOMC) and Thursday we get the first read of fourth-quarter 2020 gross domestic product (GDP), which currently has a consensus estimate of 4.2% for the quarter.
Economic view (from JP Morgan): The resurgent pandemic has clearly led to a slowdown in consumer activity, which should be evident in this week’s GDP report for the fourth quarter. As shown, we now estimate growth slowed to 5.2% for the quarter as partial lockdowns and a lapse in fiscal support through most of the quarter caused consumption growth to slow considerably. After bouncing 41% annualized in 3Q20, contributing 25 percentage points to GDP growth, we estimate consumption grew just 3.2% in 4Q20, contributing just 2.2 percentage points to growth. While the cooling in consumer spending may be notable, other parts of the economy likely showed continued modest recovery. We believe low-interest rates and elevated cash balances allowed businesses to increase fixed investment and rebuild their inventories while the housing sector remained a bright spot, supported by low mortgage rates. The $900 billion fiscal stimulus passed in December, and the likelihood that the incoming administration will push through at least another $1 trillion in fiscal support in the coming months, should result in a renewed surge in growth for the rest of the year.
Weekly Returns and Data
Sources: Goldman Sachs Asset Management, JP Morgan Asset Management
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