Week in Review January 25, 2021 - PowerPoint Presentation

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Week in Review

January 25, 2021

LAST WEEK IN REVIEW

The major indexes moved higher last week, hitting new intraday highs on Thursday before a Friday pullback. Communication services shares led the gains in the S&P 500 Index, boosted by a sharp gain in Netflix shares following its report of surprisingly large subscriber gains in the fourth quarter. Facebook and Google's parent company, Alphabet, were also strong, as were video-gaming stocks. On the other hand, energy shares lagged as oil prices fell back on a surprising rise in US inventories and the rollback of the Keystone Pipeline (a major energy infrastructure project). As fast-growing technology-related stocks led the gains, the market's recent rotation into small-caps and value stocks reversed, at least temporarily. Trading volumes remained exceptionally high, reflecting, in part, heavy participation by individual investors. The market was closed last Monday in observation of Martin Luther King Jr. Day.

Hopes for substantial new stimulus under the Biden administration appeared to drive much of the gains early in the week. On Tuesday, former Federal Reserve Chair and Treasury Secretary nominee Janet Yellen jawboned the Senate Finance Committee that it was necessary to "act big" to help the economy deal with lockdowns and high unemployment. Investors may have been further encouraged by her statement that President-elect Joe Biden was focused on supporting the economy rather than raising taxes (although that changed on Friday when a potential gas tax was introduced). Biden's inauguration on Wednesday took place without any significant protests or violence, which also seemed to calm Wall Street's nerves.

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LAST WEEK IN REVIEW

 -

Cont.

Coronavirus news appeared to be another driver of sentiment. President Biden repeated his goal of 1 million vaccinations a day for the first 100 days of his presidency. However, there was some confusion about whether this meant 50 million Americans getting the recommended two doses of the Pfizer/

BioNTech and

Moderna vaccines, or 100 million first doses. Among his first acts in office, Biden also reversed the Trump administration's decision to withdraw from the World Health Organization. Simultaneously, the nation's leading infectious disease official, Dr. Anthony Fauci, said that additional vaccines should be on their way soon. Daily deaths from the virus in the US hit the second-highest level on record on Wednesday, but daily cases and hospitalizations showed signs of moderating. However, some health experts warned that the reprieve might be temporary given the arrival of more infectious strains of the virus. U.S. – MARKETS & ECONOMYLast week's relatively light economic calendar did not appear to play a significant role in driving markets. Weekly jobless claims fell back from a multi-month high but remained elevated, at 900,000. At the same time, IHS Markit's primary gauges of both manufacturing and service sector activity in January surprised on the upside. The housing sector remained in great shape, with existing home sales and housing starts at their highest levels since 2006. The exceptionally tight market posed a challenge for new buyers, however. The supply of unsold single-family homes would be exhausted in 1.9 months at the current sales pace—the lowest supply level on record going back to 1982.

U.S. EQUITY MARKET PERFORMANCE – As of close Friday, January 22, 2021

Index

Friday's Close

Week's Change

% Change YTD

DJIA

30,996.98182.721.28%S&P 5003,841.4773.222.27%Nasdaq Composite13,543.06544.565.08%S&P MidCap 4002,463.1838.946.79%Russell 20002,168.2745.499.63%

Source: Bloomberg. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Source: Hedgeye.com

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US YIELDS & BONDS

Treasury yields remained generally steady over the week. (Bond prices and yields move in opposite directions.) Fixed-income traders I spoke with reported that the generally positive economic data helped to offset downward pressure on yields from the Fed's Treasury purchases and news of an extended lockdown in Germany. The broad municipal debt market outpaced Treasuries for much of the week. The muni market's technical environment continued to receive support from steady cash flows, strong demand for new deals, and muted supply of tax-exempt bonds. Traders noted that modest buying from Asia weighed slightly on the investment-grade corporate bond market, although demand for primary issuance was strong. The primary calendar was active with various banks coming to market, and the new deals were well subscribed.

Meanwhile, hopes for additional stimulus and positive corporate earnings reports bolstered the performance of high yield bonds. High yield investors were also mostly focused on new deals, and the market saw steady issuance throughout the week. Below-investment-grade funds reported negative flows, however.

US TREASURY MARKETS & WEEKLY YIELD CHANGE – As of close Friday, January 22, 2021

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Mth

: -0.01 bps to 0.07%

10-yr

: +0.01 bps to 1.09%

2-yr

: -0.01 bps to 0.12%

30-yr

: +0.02 bps to 1.85%

5-yr: -0.02 bps to 0.43% Source: For the week ending Jan 22, 2021. Bloomberg. Yields are for illustrative purposes only and does not represent the performance of any specific security. Yield changes are of one week. Past performance cannot guarantee future results.Source: Hedgeye.com

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INTERESTING NEWS OVERSEAS

The STOXX Europe 600 Index finished the week roughly flat, as US economic stimulus doubts and renewed coronavirus concerns held back gains. Germany’s

Xetra

DAX Index rose 0.63%, France’s CAC 40 fell 0.93%, and Italy’s FTSE MIB slid 1.31%. The UK's FTSE 100 Index fell 0.60%, partly held back by the British pound's strength relative to the dollar and fears that the strict coronavirus lockdown would not end anytime soon.

Core eurozone, government bond yields, rose after the European Central Bank (ECB) indicated that it might not use the entire amount available in the pandemic emergency bond-purchasing program—news that the market interpreted as somewhat hawkish. Growing expectations for additional US fiscal stimulus under President Joe Biden also sent yields higher. Peripheral eurozone bond yields mostly tracked core markets, although they eased before the ECB's statement when Italian Prime Minister Giuseppe Conte won a confidence vote in Parliament. Gilt yields rose on optimistic comments about economic recovery from Bank of England (BoE) Governor Andrew Bailey and the UK's encouraging pace of inoculations.

Governments continued to extend lockdown measures amid concerns about the spread of highly infectious mutations of the coronavirus. Germany extended its harsh lockdown restrictions until February 14. Since World War II, the Dutch government imposed the first nationwide curfew and banned flights from the UK to stop the spread of a mutated variant of the virus. European Union (EU) leaders stepped back from imposing an EU-wide travel ban but warned that stricter lockdown measures are likely to persist due to the virus's new strains. Ireland will extend its lockdown, due to end February 5, to March 5. UK Prime Minister Boris Johnson told broadcasters that it is "too early" to say when the national lockdown will end, raising fears that restrictions could last until midyear.

Chinese stocks rallied amid strong economic data and on hopes of warmer U.S.-China relations under President Biden (shocker). The Shanghai Composite Index advanced 1.1% to 3,606.8 and the CSI 300 large-cap index rose 2.0%, closing at 5,569.8. In an early test case for U.S.-China relations, China's three biggest telecom companies appealed the New York Stock Exchange's recent decision to delist their U.S.-listed shares, a move that is expected to receive a response within 25 days. On the coronavirus front, China now has 22 million people under lockdown as officials try to contain a recent Hebei Province outbreak. Case numbers remain low compared with other countries, though a high number of asymptomatic infections and the rural location of some clusters have concerned authorities.

China's sovereign 10-year bond yield ended broadly flat despite a raft of robust December economic data. The People's Bank of China left the loan prime rate unchanged for the ninth straight month. In currency trading, China's renminbi was stable versus the US dollar.

China's economy officially grew by 2.3% in 2020, near forecasts and underscoring the country's remarkable recovery from prior-year coronavirus lockdowns. Fourth quarter real gross domestic product growth accelerated to 6.5% year-on-year, making China the only major economy to regain its pre-virus trend.

THE WEEK AHEAD

The US Federal Reserve is seen holding the target range for the federal funds rate steady at 0-0.25 percent at the end of its two-day meeting on Wednesday, with investors focusing on Chair Jerome Powell's press conference for clues on the next monetary policy steps. Last month, the central bank reiterated it was committed to using its full range of tools to support the US economy, as the uncertainty surrounding the economic outlook remained elevated.

On the economic data front, the advance estimate of US GDP will probably suggest a sharp slowdown in economic recovery during the fourth quarter of the year, amid record COVID-19 infections, high unemployment levels, and a lack of government support. The world's largest economy is seen growing by an annualized 4 percent during the October to December period, easing from a record expansion seen in the previous three-month period. Other notable publications include personal income and outlays; PCE price index; durable goods orders; fourth-quarter employment cost index; CB consumer confidence; new and pending home sales; Chicago Fed National Activity Index; Dallas Fed Manufacturing Index; Case-Shiller home prices; Chicago PMI; the advance estimates of goods trade balance and wholesale inventories; and the final reading of Michigan consumer sentiment.

Investors will also be closely monitoring one of the busiest weeks of the earnings season, with focus turning to reports from big firms including Apple, Microsoft, Facebook, Tesla, 3M, Johnson & Johnson, Caterpillar, American Express, Mastercard, Visa, AT&T, Verizon, McDonald's, Starbucks, General Electric, Boeing and Chevron.

Call your LCP advisor with any questions.

Stephen

Colavito

, Jr.Managing DirectorChief Investment Officer – Private WealthChief Market Strategist

Lakeview Capital Partners, LLC

1201 Peachtree Street NE

Suite 1850

Atlanta, GA 30361

(404) 418-7776 (office)

(404) 313-1388 (mobile)

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