Market Recap - Week Ended 03.12.21
Overview: Stocks were higher across the globe last week as fiscal and monetary stimulus continued to take center stage. In the U.S., President Biden signed the $1.9 trillion “America Rescue Plan” bill. In Europe, the European Central Bank (ECB) announced the intention to increase the pace of the purchase of securities in response to the recent increase in interest rates. Meanwhile, muted inflation data continues to support the global stock market rally. In the U.S., the S&P 500 Index finished the week up 2.7%, while international developed stocks (MSCI EAFE) led the pack with a 3.0% return. In bonds, the 10-year Treasury yield hit its highest level in a year, closing the week at 1.63%. Interest rates have been rising amid labor market recovery and continued improvement in re-openings and vaccinations across the country. The specter of increased debt is also weighing on yields, with increased Treasury bond supply weighing on the markets. There was good news last week in that successful auctions of both 10-year and 30-year Treasuries helped stabilize rates and renew confidence that markets have sufficient demand to handle this supply.
Economic news: Inflation data remains tepid for the time being, as U.S. consumer prices (CPI) rose just 0.1% last month. Core CPI rose 1.3% year-over-year, below expectations. Attention now turns to the Federal Reserve meeting this week, as investors look for continued direction and monetary support from the Fed. Particular focus will be on the central bank views on interest rates and inflation.
A COVID-19 milestone (view from JP Morgan): Next week will mark a year since the COVID-19-induced market low on March 23, 2020. Historically, small caps tend to outperform large caps in the first year of a bull market, while trends during the second year have been more mixed in terms of large cap vs. small cap and growth vs. value. We continue to expect value to outperform growth this year as the earnings of financial, industrial and energy companies are much more levered to an economic restart. With earnings a key driver of performance this year, we take comfort in the fact that since 1957, earnings have only contracted once in the second year of a bull run. However, with the economic re-opening just around the corner, many are becoming wary of when a correction may occur, citing a growing federal budget deficit, rising rates and a return to trend growth. Volatility typically spikes 15-16 months into a bull run, indicating it would not be surprising to see risk assets pull back in June or July. Interestingly, this is when we expect the U.S. to reach herd immunity and see a major resumption in economic activity.
Market Returns and Data:
Sources: JP Morgan Asset Management, Goldman Sachs Asset Management
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