Things That Make You Go Hmmm…
By: George Boyan
Timing the Market versus Time In the Market
Our regular readers know that we strongly prefer the latter. The world’s most successful investors advocate that the primary determinant of long term returns are the amount of time that one is invested in the markets.
However, a group of retail “investors” flipped the narrative last week. Wall Street made headlines on Main Street as a group of individuals took positions in a variety of heavily-shorted companies catapulting these low priced stocks into exponential returns.
While the thought of 200% returns in just a couple of days seems enticing, our investment thesis remains unchanged. Invest in high quality, best in class businesses at reasonable prices and stay invested in them over the long run. This time-tested strategy has proven to be the most successful way to achieve your investing goals.
By: Ariel Segal
The FOMC unsurprisingly left the Fed Funds Target Rate range unchanged on Wednesday. In addition, Fed chair Jerome Powell made it clear that it would be “some time” until enough progress was made towards the central bank’s dual mandate to begin the tapering of the current bond-buying program.
Annualized GDP growth in the fourth quarter came in at 4%, a smidge under the surveyed estimate which was 4.2%. Business and residential investment were the largest growth contributors in Q4.
On Friday, legislation was formally introduced by democrats to roll back the $10,000 cap on state and local tax deductions (SALT). The cap was included in the Republicans’ 2017 tax law and its removal would benefit many high-tax states, including New York, New Jersey, and California.
Kicking off February, the GOP released details of their $618 billion stimulus bill proposal. The plan includes $1,000 stimulus checks vs Biden’s proposed $1,400 with a much smaller range of recipients ($40k – $50k/year earners). Items from Biden’s plan that have been completely omitted from this proposal includes aid for state and local governments and a minimum-wage increase to $15/hour.
NYC indoor dining is set to return at 25% capacity starting on February 14th. The city’s positive test rate declined 2.2% in the month of January. 31.8 million vaccine doses have been given in the U.S. thus far and 98.3 million have been administered worldwide.
Fixed Income Market:
By Joseph Colleran
The credit markets saw January end with a slightly weaker tone as both IG and HY levels were slightly lower. Investment grade corporate bonds were 2-3 basis points wider in spread versus UST’s while HY bonds were approximately one half point lower in price. Supply remains the primary factor behind lower HY levels as January set the all-time high for new issuance. $41BLN in new HY debt came to market, eclipsing the previous high of $38BLN set in 2019. On a related note, HY bond funds saw their second straight week of outflows while IG saw the opposite, seeing $6 BLN of new money.
The LISI desk continues to see strong demand in the Structured Note sector as our retail investors search for yields higher than are available in vanilla corporates. With yields on the UST 10yr hovering near 1% the absolute levels on IG bonds are relatively uninteresting. We also see ongoing interest in secondary “steepener” issues as the UST curve has continued steepening. The UST2yr-30yr swaps curve now stands at 141bps, this level was last seen over 4yrs ago. For context, this measure stood at 17bps one year ago.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $ 1.4 BLN
IG Bond Funds up $6.0 BLN
HY Bond Funds down $1.3 BLN
Municipal Bond Funds up $2.2 BLN
Domestic Equity Funds up $0.4 BLN
IG Bond Funds up $8.3 BLN
HY Bond Funds down $0.9 BLN
Municipal Bond Funds up $1.9 BLN
By: James Zurovchak
Last week equity markets had their biggest weekly drop since October of last year after making new all-time highs to start the week last Monday. The week’s volatility centered around the social media/retail driven epic short squeeze in a variety of single names. NASDAQ was down 3.5% with DJI and S&P 500 each lower by 3.3%. Hedge funds raising cash to cover shorts, as well profit taking by those concerned with current valuations could be the reasons for the retreat. All 11 GICS sectors were down on the week with Energy (-6.5%), Technology (-5.9%) and Materials (-5.0%) leading the way lower. Real Estate (-0.8%), Utilities (-1.1%), Communications (-1.5%) and Consumer Staples (-1.5%) held up the best. Growth and Value were down 3.4% and 3.5% respectively. Small Caps underperformed losing 4.4% on the week. Focus this week will again be on the $1.9 Trillion stimulus package that continues to be debated in Congress, as well as any repercussions from last week’s short squeeze event such as Washington investigations and the possibility of new regulations. Despite last week’s performance dragging DJI and S&P 500 negative for January, the popular view is that stocks should get a tailwind from the anticipated economic recovery, past as well as future government stimulus and continued accommodative Fed policy.
By Anthony Minardo
The currency markets continue to take a back seat to all the “hoopla” surrounding the equity markets the past few weeks.
The retail trading frenzy in the equities has now shifted to silver, where we are currently trading at $30 oz., a level we haven’t seen since 2013.
The US dollar is unchanged to begin February, holding on to the recent gains seen in January, after trending lower for the majority of 2020. The market remains mixed; we continue to battle between the ongoing increases in COVID-19 cases along with the lack of vaccination distribution, and the possibility of the Johnson and Johnson vaccine approval by the FDA and negotiations of another COVID fiscal stimulus package. US data this week, which includes ISM manufacturing and services, nonfarm payrolls, and unemployment could provide additional support to the dollar if the data is favorable.
By Brian Stigliano
A Good Time to Clean Out the Garage
My family and I were recently forced to clean out our garage due to a home renovation. When going through all of the “stuff” that has accumulated over the years, I was often times confused as to why I didn’t just throw many of the items away years ago. Some things were broken, some were outdated, and others I probably never needed to begin with.
With most of us still somewhat housebound due to the ongoing COVID-related social restrictions, what better time than now to clean out your “financial” garage? Perhaps it’s time to review those insurance policies that were purchased years ago and no longer fit with your goals. Or it may be the brokerage accounts or retirement plans that have accumulated but do not have a coherent strategy. Or it may be the will that was written long ago that no longer applies to your desires, current tax laws, or family dynamic.
All of this “cleaning” can be made easier with the help of a wealth manager or financial planner. It may seem overwhelming at first, but just like cleaning out a real garage, getting started is the hardest part.
Last Week's Economic Data 2/1
|Last Week's Economic Data||Actual||Survey|
|Durable Goods Orders||0.2%||1.0%|
|FOMC Rate Decision (Upper Bound)||0.25%||0.25%|
|Wholesale Inventories MoM||0.1%||0.5%|
|GDP Annualized QoQ||4.0%||4.2%|
|Initial Jobless Claims||847k||875k|
|New Home Sales||842k||866k|
This Week's Economic Data 2/1
|This Week's Economic Data||Release Date||Survey|
|ADP Employment Change||2/3/21||60k|
|Initial Jobless Claims||2/4/21||830k|
|Durable Goods Orders||2/4/21||0.2%|
|Change in Nonfram Payrolls||2/5/21||60k|
|Source: Bloomberg L.P.|
Market Movement 2/1
|Interest Rates||Current||WoW||MoM||YoY||US Swap Spreads||Current||WoW||MoM||YoY|
|1 Month Libor||0.11%||(1.5 bp)||(3.1 bp)||(154.9 bp)||12-Month||+10 bp||+0.2 bp||+1.4 bp||(5.0 bp)|
|3 Month Libor||0.20%||(1.7 bp)||(4.3 bp)||(155.6 bp)||2-Year||+8 bp||(0.7 bp)||+0.0 bp||(2.7 bp)|
|6 Month Libor||0.22%||(1.8 bp)||(4.3 bp)||(153.0 bp)||3-Year||+8 bp||(0.2 bp)||+0.8 bp||+1.9 bp|
|12 Month Libor||0.31%||(0.7 bp)||(3.6 bp)||(150.1 bp)||5-Year||+11 bp||+0.9 bp||+3.9 bp||+6.8 bp|
|Fed Funds Effective||0.07%||(1.0 bp)||(2.0 bp)||(148.0 bp)||7-Year||+6 bp||+0.5 bp||+4.5 bp||+8.1 bp|
|SOFR||0.06%||+0.0 bp||(4.0 bp)||(147.0 bp)||10-Year||+5 bp||+5.8 bp||+20.2 bp||+83.5 bp|
|US Treasury Yields||Current||WoW||MoM||YoY||30-Year||(24 bp)||+4.3 bp||+20.2 bp||+111.3 bp|
|12-Month||0.07%||(1.5 bp)||(3.1 bp)||(134.9 bp)||Equity Markets||Current||WoW||MoM||YoY|
|2-Year||0.11%||(0.4 bp)||(1.0 bp)||(120.2 bp)||Dow Jones||30,273||+1.0%||(1.1 %)||+7.1%|
|3-Year||0.17%||+0.0 bp||+0.8 bp||(112.1 bp)||S&P 500||3,772||+1.6%||+0.4%||+17.0%|
|5-Year||0.42%||+1.9 bp||+6.0 bp||(89.3 bp)||NASDAQ||13,406||+2.6%||+4.0%||+46.5%|
|7-Year||0.75%||+3.9 bp||+11.1 bp||(66.5 bp)||Currencies||Current||WoW||MoM||YoY|
|10-Year||1.07%||(0.4 bp)||(1.0 bp)||(120.2 bp)||Euro||1.2073||(0.5 %)||(1.2 %)||+9.2%|
|30-Year||1.84%||(0.4 bp)||(1.0 bp)||(120.2 bp)||Japanese Yen||104.9400||(1.1 %)||(1.7 %)||+3.6%|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY||British Pound||1.3677||+0.0%||+0.0%||+5.2%|
|12-Month||0.18%||(1.3 bp)||(1.7 bp)||(140.0 bp)||Canadian Dollar||1.2826||(0.7 %)||(0.8 %)||+3.6%|
|2-Year||0.19%||(1.0 bp)||(1.0 bp)||(122.9 bp)||Australian Dollar||0.7640||(0.9 %)||(0.7 %)||+14.2%|
|3-Year||0.26%||(0.2 bp)||+1.6 bp||(110.2 bp)||Swiss Franc||0.8965||(0.9 %)||(1.2 %)||+7.7%|
|5-Year||0.53%||+2.8 bp||+9.9 bp||(82.5 bp)||Israeli Shekel||3.2935||(0.6 %)||(2.5 %)||+4.6%|
|7-Year||0.81%||+4.4 bp||+15.7 bp||(58.5 bp)||Bitcoin||33,840||+3.5%||+15.7%||+264.9%|
|10-Year||1.12%||+5.4 bp||+19.2 bp||(36.7 bp)||Commodities||Current||WoW||MoM||YoY|
|30-Year||1.59%||+4.0 bp||+19.2 bp||(8.9 bp)||Gold||1,861||+0.3%||(2.0 %)||+17.1%|
|Source: Bloomberg L.P.||Crude Oil||53||+1.2%||+10.0%||+3.5%|
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