Week from 11 to 17 January 2021
After the statements from two Fed officials on Tuesday and Jerome Powells speech on Thursday, it is increasingly clear that the US central bank will continue quantitative easing until the country has recovered from the impact of the COVID-19 pandemic, even if it takes time. Another good news came from President-elect Joe Biden who revealed his $1.9 trillion stimulus plan to prop up the economy. Although this is much more than market expectations, stocks remained under pressure all week long. Concerns on more restrictive lockdown measures that could intensify a global downturn weighed on stocks. The latest reports showed that consumer sentiment is on the decline (University of Michigan Consumer Sentiment Index down 1.5 points to 79.2 in the preliminary January reading).
The Dow Jones Industrial Average fell 0.91% week-over-week, or 284 points. The S&P 500 was down 1.48%, while the Nasdaq Composite slipped 1.54%. Once again, it is worth noting that small cap stocks outperformed their large cap counterparts (Russell 2000 up +1.51%). This is not an uncorrelated return stream but their cumulative excess return was significant over the first two weeks of January (+7.2% vs. the S&P 500).
Unsurprisingly, European equity markets closed lower (MSCI EMU down 1.25%) as all the countries are battling a surge in Covid-19 cases. APAC markets were mixed (Nikkei up 1.35% as machinery orders rose for a second straight month in Japan, KOSPI down 2.1% and Shanghai Composite remaining virtually unchanged: -0.10%).
Among the S&P sectors, energy led the pack (+3.13% WTD as oil prices remained high WTI at $52.36/barrel), followed by defensive sectors such as real estate (+1.86%) and utilities (+1.06%). By contrast, communication services (-3.56%), information technology (-2.62%), consumer staples (-1.99%) and consumer discretionary (-1.88%) pushed the market lower. The fab 5 stocks strongly contributed to the fall of benchmark indices (Facebook: -6.06%, Google-Alphabet: -3.91%, Apple: -3.72%, Microsoft: -3.17%, Amazon: -2.46%).
In the bond space, Treasury yields gapped down (US 10-year note at +1.09%, Germany 10-year Government bond at -0.54%). Invesment grade corporate bonds (-0.09% in Europe, -0.16% in the US), high-yield bonds (-0.04% in Europe, +0.14% in the US) and emerging debt (-0.23% in local currencies) struggled to limit losses.
Lastly, gold edged down ($1,829.90/Oz, i.e. -0.30%) as the U.S. Dollar was in rebound mode (EUR-USD down -1.31%), dampening demand for the yellow metal.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2021-01-15/global