What I’m Watching This Week – 1 February 2021

The Markets (as of market close January 29, 2021)

Equities were mixed to begin last week. The Global Dow (-0.6%), the Russell 2000 (-0.3%), and the Dow (-0.1%) lost value. The S&P 500 advanced 0.4% on the day, and the Nasdaq closed up 0.7% to reach a record high. Treasury yields fell, while crude oil prices and the dollar rose. Technology, consumer staples, real estate, and utilities led the sectors. Investors may have pulled away from stocks following uncertainty over President Biden’s stimulus plan; news of a new, aggressive COVID-19 strain; foreign travel restrictions into the United States; and word that a major pharmaceutical company had stopped working on its COVID vaccine program.

Only the Global Dow edged higher last Tuesday, a day that saw investors take profits from record-setting equities. Small caps, which had been soaring, fell back, pulling the Russell 2000 down 0.6%. The S&P 500 dropped 0.2%, while both the Nasdaq and the Dow inched down 0.1%. Crude oil prices and the dollar gave back Monday’s gains, while the yield on 10-year Treasuries was unchanged. Among the sectors, real estate, consumer staples, and communication services fared the best, while energy, materials, financials, and industrials fell.

A less-than-optimistic assessment from the Federal Reserve sent stocks reeling last Wednesday. Each of the benchmark indexes fell sharply, led by the Nasdaq and the S&P 500, which each lost 2.6%, while the Dow fell 2.1%. The Russell 2000 and the Global Dow each dropped 1.9%. Prices for Treasury notes spiked, pulling yields lower by 2.5%. Crude oil prices and the dollar gained. All of the sectors fell, with communication services, health care, and materials the hardest hit.

Investors looked for value buys last Thursday, taking advantage of lower stock prices following Wednesday’s sell-off. The large caps of the Dow and the S&P 500 both rose 1.0%, while the Nasdaq and the Global Dow each advanced 0.5%. The small caps of the Russell 2000 edged down 0.1%. Industrials, health care, communication services, financials, and materials performed well last Thursday. Treasury yields climbed 4.2%, while crude oil prices and the dollar fell.

The week saw a new type of market risk due to “cyberbulling” — a scenario where retail investors acting together online agree to buy certain stocks, which can create extreme volatility in certain stocks and sectors. Ultimately, the week closed on a sour note for stocks as each of the benchmark indexes lost value last Friday. The Dow, the Nasdaq, and the Global Dow each fell 2.0%. The S&P 500 finished down 1.9%, and the Russell 2000 dropped 1.6%. Treasury yields and the dollar closed up, while crude oil prices dropped. All of the market sectors finished the day in the red, led by energy, which plunged 3.4%.

Each of the benchmark indexes listed here lost significant value last week. The Russell 2000, which had gotten off to a very positive start to the new year, suffered the largest drop, falling 4.4%, followed by the Global Dow, the Nasdaq, the S&P 500, and the Dow. The dollar and crude oil prices closed slightly ahead, while gold prices dipped lower. For the third consecutive week, 10-year Treasury yields ended the week where they began. Year to date, the Russell 2000 and the Nasdaq are the only indexes still in the black.

The national average retail price for regular gasoline was $2.392 per gallon on January 25, $0.013 higher than the prior week’s price but $0.114 less than a year ago. Crude oil imports into the United States averaged 5.1 million barrels per day for the week ended January 22, a decrease of 1.0 million barrels per day from the previous week.

Stock Market Indexes

Market/Index2020 ClosePrior WeekAs of 1/29Weekly ChangeYTD Change
DJIA30,606.4830,996.9829,982.62-3.27%-2.04%
Nasdaq12,888.2813,543.0613,070.69-3.49%1.42%
S&P 5003,756.073,841.473,714.24-3.31%-1.11%
Russell 20001,974.862,168.762,073.64-4.39%5.00%
Global Dow3,487.523,598.293,455.84-3.96%-0.91%
Fed. Funds target rate0.00%-0.25%0.00%-0.25%0.00%-0.25%0 bps0 bps
10-year Treasuries0.91%1.09%1.09%0 bps18 bps
US Dollar-DXY89.8490.2290.570.39%0.81%
Crude Oil-CL=F$48.52$52.09$52.170.15%7.52%
Gold-GC=F$1,893.10$1,853.50$1,847.30-0.33%-2.42%

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • The Federal Open Market Committee met last week and decided to keep the target range for the federal funds rate at 0.00%-0.25%. The Committee indicated that it expects to maintain that target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment, and inflation has risen to 2.0% and is on track to moderately exceed 2% for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month. The Committee indicated that the pace of economic activity and employment has moderated, with weakness concentrated in the sectors most adversely affected by the pandemic. This assessment is scaled back from December, when the Committee noted that economic activity and employment had continued to recover.
  • The economy grew at an annual rate of 4.0% in the fourth quarter, according to the initial, or advance, estimate of the gross domestic product. The GDP increased 33.4% in the third quarter after declining 31.4% in the second quarter. Consumer spending rose by 2.5% in the fourth quarter following a 41.0% surge in the third quarter. Consumer prices increased 1.5% in the fourth quarter, compared with an increase of 3.7% in the third quarter. Nonresidential fixed investment (what businesses spend on physical structures and equipment) climbed 13.8%, while residential fixed investment rose 33.5%. In the fourth quarter, exports advanced 22.0% and imports increased 29.5%.
  • Consumer prices edged up 0.4% in December. Both personal income and disposable personal income increased 0.6% in December. Consumer spending fell 0.2% in December. For 2020, consumer prices rose 1.3%; personal income increased 6.3%; disposable personal income climbed 7.2%; and personal consumption expenditures (consumer spending) fell 2.7%.
  • Durable goods orders increased for the eighth consecutive month in December. New orders advanced 0.2% following a 1.2% increase in November. Machinery, also up eight consecutive months, drove the increase, climbing 2.4% in December. Shipments of manufactured durable goods in December, up seven of the last eight months, increased 1.4%. This followed a 0.4% November increase. Unfilled orders for manufactured durable goods in December, down nine of the last ten months, decreased 0.3%. Inventories of manufactured durable goods in December, down following three consecutive monthly increases, decreased 0.2%. Nondefense new orders for capital goods in December decreased 2.0%.
  • Sales of new, single-family homes increased 1.6% in December and finished 2020 up 15.2%. The median sales price of new houses sold in December 2020 was $355,900. The average sales price was $394,900. The estimate of new houses for sale at the end of December was 302,000. This represents a supply of 4.3 months at the current sales rate.
  • The international trade in goods deficit was $82.5 billion in December, down 3.5% from November. Exports of goods for December were $133.4 billion, 4.6% more than November exports. Imports of goods for December were $215.9 billion, 1.4% more than November imports. In 2020, the trade in goods deficit increased by $13.2 billion, or 19.1%. Exports fell $3.5 billion, or -2.6%. Imports rose $9.7 billion, or 4.7%.
  • For the week ended January 23, there were 847,000 new claims for unemployment insurance, a decrease of 67,000 from the previous week’s level, which was revised up by 14,000. According to the Department of Labor, the advance rate for insured unemployment claims was 3.4% for the week ended January 16, a decrease of 0.1 percentage point from the prior week’s revised rate. For comparison, during the same period last year, there were 212,000 initial claims for unemployment insurance, and the insured unemployment claims rate was 1.2%. The advance number of those receiving unemployment insurance benefits during the week ended January 16 was 4,771,000, a decrease of 203,000 from the prior week’s level, which was revised down by 80,000. States and territories with the highest insured unemployment rates in the week ended January 9 were in Kansas (7.7%), Pennsylvania (7.0%), the Virgin Islands (6.9%), Alaska (6.4%), Nevada (6.1%), Michigan (5.6%), Puerto Rico (5.6%), Illinois (5.5%), New Mexico (5.5%), and Connecticut (5.4%). The largest increases in initial claims for the week ended January 16 were in Florida (+8,643), Maryland (+7,935), Kansas (+6,746), Ohio (+5,665), and Rhode Island (+2,998), while the largest decreases were in California (-65,383), New York (-10,936), Texas (-9,170), Pennsylvania (-8,503), and Washington (-7,877).

Eye on the Week Ahead

The latest information on the employment situation for January is the most noteworthy report out this week. December saw the number of jobs decrease by 140,000, while the unemployment rate was 6.7% — figures directly tied to a spike in COVID-19 cases.