Markets rose this week as unemployment claims and consumer sentiment both beat expectations. Improvements in
both indicators likely helped lift the SP500 index the closest it has ever been to the 4000 mark. Also taking
place on Thursday was the oStockPointDigitalcial passage of the new federal stimulus bill, coming in at a price tag
of $1.9 trillion. The biggest highlight of the bill includes $1400 in direct payments to individuals making
under a certain threshold. New COVID-19 infections moved little this week, with 7 day moving averages
increasing negligibly. U.S. infections appear to be declining at a slower pace, but overall still seem to be
exhibiting downward momentum.
Overseas, developed markets outperformed emerging markets. European and Japanese markets all rose
substantially, reflecting similar optimism to U.S. markets. Improving prospects against the pandemic as well
as improved prospects for recovery should continue to help lift markets globally over time.
Markets were positive this week as investors continue to assess the state of the global economy. While fears
concerning global stability and health appear to be in decline, the recent volatility serves as a great
reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified
portfolio. When stocks were struggling to gain traction last month, other asset classes such as gold, REITs,
and US Treasury bonds proved to be more stable. Flashy news headlines can make it tempting to make knee-jerk
decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk
tolerance can lead to smoother returns and a better probability for long-term success.
Chart of the Week
Treasury yields on 10 year Treasuries are back to levels not seen since pre-shutdown. Rising yields have some
cheering, saying that they signal recovery. Others are sounding alarm, saying they mean that inflation will
rise substantially.
Market Update
Equities
Broad market equity indices finished the week up, with major large cap indices underperforming small cap.
Economic data has been encouraging, but the global recovery has a long way to go to recover from COVID-19
lockdowns. S&P sectors returned exclusively positive results this week. Consumer discretionary and real
estate outperformed, returning 5.74% and 5.71% respectively. Energy and communications underperformed, posting
1.08% and 0.71% respectively. Energy maintains its lead in 2021 with a 40.08% return.
Commodities
Oil fell slightly this week as crude oil inventories unexpectedly increased. Energy markets have been highly
volatile in the COVID era, but it appears that price stability may be on the horizon given recent
developments. Demand is still low compared to early 2020, but as vaccinations proliferate, lockdown
restrictions in Europe as well as the U.S. should start to loosen, helping support recovery. On the supply
side, operating oil rigs are still well under early 2020 numbers, but trending upwards. In addition to supply
and demand, a weakening dollar is likely to have a large impact on commodity prices. Gold rose this week as
the U.S. dollar weakened. Gold is a common “safe haven” asset, typically rising during times of market stress.
Focus for gold has shifted again to include not just global macroeconomics surrounding COVID-19 damage and
recovery efforts, but also inflation and its possible impact on U.S. dollar value.
Bonds
Yields on 10-year Treasuries rose this week from 1.566 to 1.6247 while traditional bond indices fell.
Treasury yield movements reflect general risk outlook, and tend to track overall investor sentiment. Treasury
yields will continue to be a focus as analysts watch for signs of changing market conditions.High-yield bonds
fell this week as spreads didn’t change. High-yield bonds are likely to remain more stable in the short to
intermediate term as the Fed has adopted a remarkably accommodative monetary stance, vaccines continue to be
administered at high rates, and major economic risk factors subside, likely helping stabilize volatility.
Lesson to be Learned
"The wise man bridges the gap by laying out the path by means of which he can get from where he
is to where he wants to go.”
-J.P. Morgan
StockPointDigital Indicators
StockPointDigital has two simple indicators we share that help you see how the economy is doing (we call this the
Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).
In a nutshell, we want the RPI to be low on a scale of 1 to 100. For the US Equity Bull/Bear indicator, we
want it to read at least 66.67% bullish. When those two things occur, our research shows market performance is
typically stronger, with less volatility.
The Recession Probability Index (RPI) has a current reading of 23.49, forecasting a lower potential for an
economic contraction (warning of recession risk). The Bull/Bear indicator is currently 100% bullish, meaning
the indicator shows there is a slightly higher than average likelihood of stock market increases in the near
term (within the next 18 months).
It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and
uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is
mission critical for long term success. Focusing on the long-run can help minimize the negative impact
emotions can have on your portfolio and increase your chances for success over time.
The Week Ahead
This week we will see updated retail sales, manufacturing, and housing indicators, as well as a Fed statement
and press conference following a new rates announcement.More to come soon. Stay tuned.