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Weekly Market Commentary 2/19/2021

-Darren Leavitt, CFA

Markets sold off a bit last week in a rotational trade into pro-cyclical sectors and out of growth stocks.  Fourth-quarter earnings continued to come in better than expected while economic data for the week was mixed.  Strong retail sales and an upside surprise in the Producer Price Index induced more steepening in the US yield curve.  Stimulus talks continued with indications that lawmakers might get a package done in the coming week.

For the week, the S&P 500 lost 0.7%, the Dow gained 0.1%, the NASDAQ gave up 1.7%, and the Russell 2000 fell 1%.  The 2-year note yield increased one basis point to close at 0.11%, while the 10-year bond yield rose fifteen basis points to close at 1.35%.  Oil prices continued their ascent, gaining $2.26 or 4% to close at $59.15 a barrel.  OPEC is expected to meet in the coming week to discuss reducing some of the production cuts; however, initially, it appears the Russians and Saudis have differing opinions on how the reductions should be implemented.  Gold prices lost 2.5% for the week or $46 to close at $1777.10 an Oz.  Interestingly, Bitcoin traded north of 57K on the week.

Industrials, Materials, Energy, and Financial issues were bid higher over the week as investors rotated out of large-cap growth stocks.  The consolidation trade comes as the yield curve has steepened, and with it comes concerns regarding valuations of the high-flying growth stocks.  Conversely, financials stand to benefit from the increased spread within the curve.  This rotational trade is nothing new, and we have seen this trend over the last several months as expectations for the reopening of the global economy became more likely.

Retail sales in January rebounded on the hopes for more stimulus.  The data set increased 5.3% on a month over month basis, much more than the 0.8% consensus estimate.  The Producer Price Index surprised to the upside as well, increasing 1.3% versus the expectation of 0.5%.  The uptick in prices at the producer level may suggest price increases at the consumer level.  In fact, this week, Kraft Heinz indicated their increased input costs would eventually have to be translated into higher prices of their products.  Initial claims regressed in the prior week, raising 17k to 861K, more than the 775K consensus estimate.  Continuing claims decreased 64K to 4.494 million.

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