February 8, 2021

Weekly Market Commentary February 1st to February 5th 2021

After last week’s volatile trading environment, the focus turned to stimulus developments and a busy week of corporate earnings. By week’s end, Democrats were optimistic about pushing through a $1.9 billion stimulus bill in a 51-50 vote, although some members were urging the party to seek a bipartisan resolution.

On Friday, the monthly jobs report was released, painting a bleak picture of the labor market even as COVID-19 case numbers improve and vaccinations ramp up. The U.S. economy added only 49k jobs, compared to an estimate of 105k. The last two jobs reports were also revised downwards, showing the effects of the winter COVID-19 spike on the economy.

Under the hood, there were some interesting numbers in the jobs report. The unemployment rate dropped to 6.3%, which sounds promising, but was actually the result of people dropping out of the labor force altogether. It is likely that older adults retiring and working parents caring for children are causing these trends. The share of unemployed U.S. workers who have been out of work for at least six months is now 40%, compared to 20% pre-pandemic. The average number of hours worked climbed by 0.3 to 35, a result of part-time and lower wage jobs being cut while higher-paying industries such as business and technology thrive. Initial Jobless claims were lower than expected at 779k, which could signal improvement in next month’s report.

The Markit U.S. Manufacturing PMI showed a reading of 59.2, indicating solid expansion. Construction Spending also grew 1% from last month, as heavy industry continues to recover from last year’s slowdown. The ISM Manufacturing survey missed estimates but came in at a similar 58.7 number. The Markit Services PMI came in at a 58.3 reading. The strong survey data from all sectors of the economy is hard to reconcile with the disappointing jobs numbers we have seen as of late.

Stocks had a fantastic week as investors focused on solid earnings reports instead of the Reddit-driven frenzy in names like GameStop and AMC that we saw last week. The S&P 500 advanced 4.7% on the week to a record close of 3,887. The NASDAQ Composite did even better, up 6% to a record high finish of 13,856. The yield of the 10-year U.S. Treasury note rose nearly 8 bps to 1.17%, driven by heightened stimulus expectations and continued investor interest in equities over fixed income.

Key economic releases next week include CPI inflation data, Initial Jobless Claims, and JOLTS Job Openings.