ND&S Weekly Commentary 2.8.21 – Markets Advance Smarty

February 8, 2021

Markets advanced smartly last week as investors keyed in on better-than-expected earnings and economic news as well as hopes for a massive $1.9T stimulus package from Washington.

For the week, the DJIA advanced 3.89% while the S&P 500 gained 4.65%. The tech-heavy Nasdaq jumped 6.01%. International markets were also strong. For the week, the MSCI EAFE index (developed markets) closed higher by 2.76%% while emerging market equities (MSCI EM) jumped 4.96% (January – March is a seasonably strong period for emerging market equities). Small company stocks, represented by the Russell 2000, finished ahead by 7.70% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate, finished the week lower as the yield curve continued to steepen. As a result, the 10 YR US Treasury closed at a yield of 1.19% (up ~8 bps from the previous week’s closing yield of ~1.11%). Gold prices closed at $1,810.90/oz – down 1.97% on the week. Oil prices jumped 8.91%.

Economic news released last week confirmed an improving jobs market and decent manufacturing and services output. On Monday, the Institute of Supply Management (ISM) reported that the purchasing managers’ index fell to 58.7% versus an expectation of 60.0%; however, the index pointed to the 8th straight month of expansion. On Wednesday the ISM reported that the Services PMI for January hit 58.7%, better than the expected 56.8% reading. On Thursday, the U.S. Commerce Department reported that new orders for durable and non-durable manufactured goods advanced 1.1%, outpacing expectations for a gain of 0.7%. Also on Thursday, the Department of Labor reported weekly initial jobless claims (for the week ending January 30) of 779,000, below consensus of 830,000 claims. On Friday, the Labor Department reported that 49,000 jobs were added in January, a slight miss against expectations for a gain of 50,000 jobs. Unemployment dropped to 6.3% (consensus was for a 6.7% rate); however, the labor force participation rate fell to 61.4% as 406,000 workers left the labor force.

Economic and market fundamentals remain reasonable, and the news on the vaccine front has been encouraging. We suggest investors stay close to their long-term target asset allocations with a slight defensive bias. The slight defensive bias is warranted in that U.S. markets have moved higher over the past few months without any meaningful setback.

“I just love working hard. I love being part of a team; I love working toward a common goal.” – Tom Brady