Infrastructure Plans Boost Optimism
From Worst to Best
U.S. equities rebounded last week with the S&P 500 transitioning from its worst week since January to its best week since February. Risk-on equity buying was driven by optimism surrounding President Joe Biden’s endorsement over a bipartisan Congressional infrastructure spending deal that should be additive to the pace of economic recovery. Meanwhile, in testimony before Congress, Fed Chairman Powell again played down run-away inflation fears, saying he has a level of confidence that prices will eventually come down, and it would be “very, very unlikely” for a repeat of 1970s-style inflation.
For the Week…
The S&P 500 rallied 2.76% last week, the Dow Industrials surged 3.44% and the tech-heavy Nasdaq Composite advanced 2.36%. The small cap-focused Russell 2000 outperformed, gaining 4.33% with small cap growth performing best, up 4.54% versus a 4.14% gain on small cap value.
Consumer Spending Plateaus
Household spending was unchanged last month (+0.4% expected). April consumer spending was however upwardly revised to a 0.9% increase (from +0.5%) on a combination of increased savings and rising vaccinations, amid a reopening economy. Consumer spending has overtaken pre-pandemic levels and suggests that 2Q GDP will be very strong.
All 11 major sector groups within the S&P 500 posted gains last week, with Energy (+6.66%) back in headliner status as best weekly performer. Financials (+5.28%) and Industrials (+3.05%) followed as next-best gainers. Consumer Staples (+1.94%), Real Estate (+1.33%) and Utilities (+0.66%) rose the least. With 2021 nearly half over, Energy (+49.44%) and Financials (+26.51%) are up the most year-to-date.
Treasury Prices Ease, Yields Rise
Benchmark 10-year Treasury yields rose last week to end at 1.54% on Friday as expectations continue to be range-bound within a 1.35% to 1.59% range for the next several weeks. The U.S. Dollar Index weakened by 0.41% last week and U.S. WTI crude oil futures gained 1%.
The Federal Reserve has a median projection of two rate hikes by 2023, but the odds are low for a rate hike over the next 12 months. There is only a 33% probability of a rate hike by the June 2022 FOMC meeting, according to the latest odds from the CME Group. With that said, the odds could increase if inflation remains elevated and the labor market recovery accelerates.
This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.
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The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.
The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings have a fluctuating average life of around 8.25 years.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity.
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index.
The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000.