The Pulse – What’s happening in the Economy and the Capital Markets: 1/11/21 – 1/15/21
January 19, 2021
Economically-sensitive stocks and commodities performed well, though overall market results were mixed for the week. Government data mirrors the high frequency data showing slowing consumer activity while industrials remain strong. Several commodities are at multi-year high prices, but inflation is not significantly emerging in government data.
There was no prominent theme among markets results last week – economically-sensitive and commodity-driven markets, such as Emerging Market, Small Cap and Energy performed best while broader, larger capitalization markets such as S&P 500 and Nasdaq declined.
Biden’s proposed $1.9 trillion stimulus plan was a driving factor. The plan is considered more inflationary which resulted in the increase in oil and other commodity prices.
The expected inflation increase is reflected in the 10-year U.S. Treasury yield which has risen swiftly in two weeks from approximately 0.9% at the start of 2021 to nearly 1.1%.
Investors remain positive regarding the markets, though the level of excitement is tempered compared to a week or month ago.
The Economic News
Trends of the last several months emerged in the High Frequency Data and in government data – most notably the strength of the Industrial economy and the weakened Consumer.
High Frequency Data
Key points from the High Frequency Data:
- Initial and Continuing Jobless Claims both increased last week (negative news)
- COVID-19’s impact on dining and hospitality are increasing unemployment numbers.
- Steel production continues to improve.
- Air travel is improving having increased compared to last month – this is likely to continue as the vaccine is more widely distributed.
Highlights from a heavy week for government data:
- Small Business Optimism reported well below expectations and declined compared to November.
- Retail Sales were well below expectations and the 3rd consecutive monthly decline.
- Sales declined 0.7% versus flat expectations.
- Excluding Auto & Gas, sales declined 2.1%. Auto sales and higher gas prices benefited their numbers.
- Consumer Price Index (CPI), excluding food & energy, was in line with expectations.
- CPI increased 0.1% from last month and 1.6% year over year.
- Producer Price Index (PPI) excluding food, energy & trade was higher than expected and November.
- PPI increased 0.4% from last month and 1.1% year over year.
- May reflect commodity-price inflation.
Industrial Sector strength
- Industrial Production increased 1.6%, significantly above expectations and November.
- Capacity Utilization reported at 5%, above expectations and an increase over November.
The strength in Industrials is reflected in the ISM Purchasing Managers Index (PMI) which is at pre-COVID-19 and 5-year highs.
ISM MANUFACTURING PMI
Focus of the Week – Commodity Prices
With the expectations of significant fiscal stimulus globally, a residential housing rebound and investment in infrastructure, commodity prices have risen. Some of the early price increases are attributed to manufacturing and supply chain disruptions caused by COVID-19 shutdowns. More recently, expectations of Industrial activities and greater demand have driven increased prices.
Oil – $52/BARREL
LUMBER (SOUTHERN PINE – COMPOSITE)
STEEL (COMPOSITE PRICE INDEX)
A Few Stories that Caught My Eye
- Massive Inflation in Shipping Costs. And the Reasons
- Dollar General Will Pay Workers to Get Vaccine in Retail First
- Blue Origin aims to fly first passengers on its space tourism rocket as early as April
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About the Author
Chief Investment Officer At Aprio Wealth Management At Aprio Simeon is the Chief Investment Officer of Aprio Wealth Management and the Director of Aprio Family Office. Simeon brings two decades of professional investing experience in publicly traded and privately held companies, as well as senior-level operating and strategy consulting experiences.