February 1, 2021

Weekly Market Commentary January 25th to January 29th 2021

It was a busy news week with several economic releases. Perhaps the most anticipated economic number of the week was Q4 GDP which rose 4%, just below the consensus of 4.2%. Personal Income rose 0.6%, propped up by last year’s stimulus. The bad news for the short-term economic recovery is that consumers are saving rather than spending. The saving rate increased from 12.9% to 13.7%, while spending fell 0.2% in December.

The Personal Consumption Expenditures (PCE) Price Index rose 0.4% month-over-month, while core prices (ex food and energy), rose 0.3%. Both increases were larger than expected following two months of no change. Year-over-year these indices are up 1.3% and 1.5%, respectively.

Durable Goods orders rose for the eighth consecutive month, posting a 0.2% gain in December, despite coming in below expectations. Year-over-year, new orders fell -7%. The drag came from transportation equipment; ex-transportation, new orders rose 0.7%. Core Capital Goods (non-defense, ex-aircraft) rose 0.6% with new orders for machinery coming in particularly strong.

Weekly Jobless Claims fell to 847,000, lower than expected and down from the previously revised reading of 914,000. Continuing Claims also declined by 203,000 to 4.77 million. While these levels are still extremely elevated, we expect public-facing jobs to recover as more Americans get vaccinated.

New Home Sales slowed to an annual rate of 842k, much lower than the expected 871k. Rising median house prices likely held this number down in December. Supply of new homes was up slightly in December but is still below where it was pre-pandemic. Pending Home Sales was also negative for the fourth time in as many months, falling -0.3% in December.

Consumer Confidence rose from 87.1 to 89.3 in January. While COVID concerns weighed down the Present Situation Index, the Expectations Index rose significantly as consumer expect business conditions and employment opportunities to improve six months from now. Buying plans were also positive, particularly for autos and homes. The Consumer Sentiment report on Friday came in at 79 for January, which was just below the mid-month score of 79.2.

Online investors made a splash when a viral Reddit thread organized traders to buy shares of GameStop and AMC, causing share prices to rise over 400% and 290%, respectively. Trading sites such as Robinhood temporarily halted the trading of these stocks, causing an uproar within the industry.

U.S. equities pulled back on the week with the S&P 500 declining -3.3% to 3,714. The Nasdaq declined -3.5% while the DJIA closed -3.3% lower. The FOMC left rates unchanged at this week’s meeting. They also opted to leave guidance on asset purchases unchanged and will continue to buy at least $40bn per month in MBS and $80bn in Treasuries. 2-year U.S. Treasuries closed at 0.11%, the 10-year closed at 1.08%, and the 30-year finished the week at 1.84%.

Key economic releases next week include PMI and ISM Manufacturing Reports and the Employment Report.