ND&S Weekly Commentary 2.16.21 – Equity Markets Grind to New Highs

February 16, 2021

Equity markets continued to grind higher last week. For the week, the DJIA increased 1.11% while the broader-based S&P 500 was up 1.28%. Small-cap U.S. equities (Russell 2000) continued their recent run to close higher by 2.54%. International markets also enjoyed a strong week as developed markets (MSCI EAFE) and emerging markets (MSCI EM) jumped 2.09% and 2.41%, respectively. The yield curve continued to steepen last week as the 10yr U.S. Treasury closed at a yield of 1.20, up slightly from 1.19 the week prior. Yields for longer maturity bonds had a slightly higher increase. Gold held steady on the week, closing at $1,816/oz. Oil (WTI) closed the week at $59.73/ barrel.

Macroeconomic updates were limited last week. On Wednesday, the Consumer Price Index (CPI) increased 0.3% in January, matching expectations. Over the 12 months, core CPI has risen a modest 1.4%. Weekly jobless claims have remained elevated, with last week’s number at 793,000. Federal Reserve chairman Jerome Powell gave a presentation to the Economic Club of New York last week. Powell indicated that the Fed has no plans to raise rates anytime soon, citing their focus on recovery in the labor market and inflation currently below their 2% target. Additionally, Dr. Tony Fauci spoke on the Today Show last week and shared his belief that there would be enough vaccines available by the middle of the summer for anyone who wants to get one.

Earnings season continued to progress largely characterized by better-than-expected results. With roughly 75% having reported so far, according to data from FactSet Research, blended earnings-per-share and revenues for the S&P 500 have increased 2.8% compared with the same quarter last year. Q4 earnings are exceeding expectations by 18%. There will be more announcements this week with CVS Health and Walmart among those scheduled.

Economic news and corporate earnings results have been encouraging. This week, there will be reports on retail sales, industrial production, housing and manufacturing. We believe a slight defensive stance is warranted in equity markets as they have moved meaningfully higher over the last several months. We will continue to add to opportunities down the U.S. market cap structure and to international markets as valuations are more reasonable and those areas are more exposed to an economic reopening.

“Truth will ultimately prevail where there are pains to bring it to light.”– George Washington