Weekly Market Commentary February 15th to February 19th 2021
It was a very telling week with quite a variety of economic data releases in the past five days. Talk of stimulus is all the buzz in Washington as the Biden administration lobbies Congress for its $1.9 trillion aid package to bolster the economy and fight the pandemic. The biggest surprise came in the form of monthly Retail Sales for January. In a print that could hinder the President’s chances of getting such a large package passed, Retail Sales blew estimates out of the water, coming in a +5.3% versus a +1.2% estimate. Only time will tell whether this will be a new trend leading the economy towards a much better place; or just a catch-up following three straight disappointing months. Either way, the consumer figures heavily into GDP so this was certainly good news.
Elsewhere in the economy, two regional manufacturing indices were also positively received. The Empire State Manufacturing Index came in at 12.1 vs a forecast of 5.9; and the Philadelphia Fed Manufacturing Index bested estimates at 23.1 vs. 19.2. Industrial Production, Capacity Utilization, and the Markit Services PMI all came in slightly stronger than expectations; while the Markit Manufacturing PMI was basically flat to forecasts. Inflation poked its head above ground for the first time in a while as Producer Prices (PPI) rose an average of 1.3% versus a 0.4% estimate. Look for talks of increasing inflation to gain traction as the Fed continually addresses the question of when they will consider raising rates.
On the employment front, Initial Jobless Claims again was a letdown. Claims came in at 861,000 when the median forecast was for 770,000. Last week was also revised upwards from 793,000 to 848,000. These numbers remain stubbornly high and if they continue this trend, and in contrast to the above inflation news, it will likely be all the incentive the Fed needs to keep rates low. Real estate rounds out the last of the releases and while it has been the star of the economy for the past few months, it was a mixed bag this week. Existing Home Sales and Building Permits both beat expectations, while Housing Starts disappointed.
In the market news, coast to coast storms and cold have been wreaking havoc on the country’s power grids and this has helped drive oil prices up over 200% since the pandemic-driven April lows. Look for prices at the pump to follow and not retreat until the Spring thaw arrives. In equity markets, the S&P500 finished the week down -0.7% at 3,907. The Dow Jones Industrials ended Friday slightly off its intraday historic high, but still finished the week up 0.1%. Lastly, the NASDAQ could not keep up; finishing down -1.6% at 13,874. In the fixed income markets, the yield curve steepened as longer interest rates were up on the week while shorter rates stayed fairly flat. The 2-Year Treasury yield dropped 5.41% to finish at 0.11%; the 10-Year yield closed at 1.34%, up 11.67%; and the 30-Year ended at 2.14%, or up 6.64%
Next week look for New Home Sales, Pending Home Sales, Q4 GDP revisions, Durable Goods, Personal Income, Consumer Spending, and of course, Weekly Jobless Claims.