Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

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.  

Macro Commentary: 

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

Prior Week:

     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

U.S Equities:

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.

Foreign Exchange:

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.   

Financial Planning:

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 DataActualSurvey
Durable Goods Orders0.2%1.0%
FOMC Rate Decision (Upper Bound)0.25%0.25%
Wholesale Inventories MoM0.1%0.5%
GDP Annualized QoQ4.0%4.2%
Initial Jobless Claims847k875k
New Home Sales842k866k
Personal Income0.6%0.1%

This Week's Economic Data 2/1

This Week's Economic DataRelease DateSurvey
ADP Employment Change2/3/2160k
Initial Jobless Claims2/4/21830k
Factory Orders2/4/210.7%
Durable Goods Orders2/4/210.2%
Change in Nonfram Payrolls2/5/2160k
Unemployment Rate2/5/216.7%
Trade Balance2/5/21-$65.7b
Source: Bloomberg L.P.

Market Movement 2/1

Interest RatesCurrentWoWMoMYoY US Swap SpreadsCurrentWoWMoMYoY
1 Month Libor0.11%(1.5 bp)(3.1 bp)(154.9 bp)12-Month+10 bp+0.2 bp+1.4 bp(5.0 bp)
3 Month Libor0.20%(1.7 bp)(4.3 bp)(155.6 bp)2-Year+8 bp(0.7 bp)+0.0 bp(2.7 bp)
6 Month Libor0.22%(1.8 bp)(4.3 bp)(153.0 bp)3-Year+8 bp(0.2 bp)+0.8 bp+1.9 bp
12 Month Libor0.31%(0.7 bp)(3.6 bp)(150.1 bp)5-Year+11 bp+0.9 bp+3.9 bp+6.8 bp
Fed Funds Effective0.07%(1.0 bp)(2.0 bp)(148.0 bp)7-Year+6 bp+0.5 bp+4.5 bp+8.1 bp
SOFR0.06%+0.0 bp(4.0 bp)(147.0 bp)10-Year+5 bp+5.8 bp+20.2 bp+83.5 bp
US Treasury YieldsCurrentWoWMoMYoY30-Year(24 bp)+4.3 bp+20.2 bp+111.3 bp
12-Month0.07%(1.5 bp)(3.1 bp)(134.9 bp)Equity MarketsCurrentWoWMoMYoY
2-Year0.11%(0.4 bp)(1.0 bp)(120.2 bp)Dow Jones 30,273 +1.0%(1.1 %)+7.1%
3-Year0.17%+0.0 bp+0.8 bp(112.1 bp)S&P 500 3,772 +1.6%+0.4%+17.0%
5-Year0.42%+1.9 bp+6.0 bp(89.3 bp)NASDAQ 13,406 +2.6%+4.0%+46.5%
7-Year0.75%+3.9 bp+11.1 bp(66.5 bp)CurrenciesCurrentWoWMoMYoY
10-Year1.07%(0.4 bp)(1.0 bp)(120.2 bp)Euro1.2073(0.5 %)(1.2 %)+9.2%
30-Year1.84%(0.4 bp)(1.0 bp)(120.2 bp)Japanese Yen104.9400(1.1 %)(1.7 %)+3.6%
US Swap Rates vs 3MLCurrentWoWMoMYoYBritish Pound1.3677+0.0%+0.0%+5.2%
12-Month0.18%(1.3 bp)(1.7 bp)(140.0 bp)Canadian Dollar1.2826(0.7 %)(0.8 %)+3.6%
2-Year0.19%(1.0 bp)(1.0 bp)(122.9 bp)Australian Dollar0.7640(0.9 %)(0.7 %)+14.2%
3-Year0.26%(0.2 bp)+1.6 bp(110.2 bp)Swiss Franc0.8965(0.9 %)(1.2 %)+7.7%
5-Year0.53%+2.8 bp+9.9 bp(82.5 bp)Israeli Shekel3.2935(0.6 %)(2.5 %)+4.6%
7-Year0.81%+4.4 bp+15.7 bp(58.5 bp)Bitcoin 33,840 +3.5%+15.7%+264.9%
10-Year1.12%+5.4 bp+19.2 bp(36.7 bp)CommoditiesCurrentWoWMoMYoY
30-Year1.59%+4.0 bp+19.2 bp(8.9 bp)Gold 1,861 +0.3%(2.0 %)+17.1%
Silver29+13.9%+9.4%+60.1%
Copper356(2.0 %)+1.1%+41.4%
Source: Bloomberg L.P.Crude Oil53+1.2%+10.0%+3.5%

IMPORTANT DISCLOSURES
The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA.  Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

•             Not insured by the FDIC or any other federal or government entity

•             Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

•             Subject to investment risks, including possible loss of the principal amount invested

© 2021 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

Ariel Segal | Treasury Analyst
350 Madison Avenue, 4th floor | New York, NY 10017
Tel: 212.626.1199 | ariel.segal@leumiusa.com  

IMPORTANT DISCLOSURES

The opinions voiced in this material, including without limitation the statistic information herein, are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. The economic or market analyses or forecasts in this material reflect the views of the individuals who prepared them and do not necessarily represent the position of Bank Leumi USA, Leumi Investment Services Inc. or of other units of the worldwide Leumi Group. The analyses and forecasts should not be construed as a recommendation to buy or sell, or the solicitation of an offer to buy or sell any securities, currencies, or financial instruments.

Bank Leumi USA, other units of the Leumi Group, or the individuals that prepared the analyses or forecasts may have positions in securities, currencies, or financial instruments that may be affected by action that is consistent with the analyses or forecasts. Any economic forecasts set forth in the presentation may not develop as predicted. The material is based in part on information from third-party sources that we believe to be reliable but which have not been independently verified by us, and for this reason we do not represent that the information is accurate or complete, and no liability is assumed for any direct or consequential losses arising from their use. Except where otherwise indicated herein, the information in this material is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available.

Investing involves risk. Past performance is not a guarantee or a reliable indicator of future results. You should obtain relevant and specific professional advice before making any investment decision. All investors must carefully consider the risks, charges, fees, and expenses, review the prospectus or other offering information if applicable, and consider their personal financial situation and tolerance for risk before making any investment.

Bank Leumi USA is an FDIC Insured, New York State chartered bank. In the U.S., banking products and services are provided through Bank Leumi USA and brokerage products and services are provided by Leumi Investment Services Inc. Leumi Investment Services Inc. is a member of FINRA (www.finra.org) and SIPC (www.sipc.org), and is a wholly-owned subsidiary of Bank Leumi USA. Certain products and services are not available to U.S. residents and/or are offered through third party providers.

Non-deposit investment products offered through Bank Leumi USA and Leumi Investment Services Inc. are:

• Not insured by the FDIC or any other federal or government entity

• Not guaranteed by Bank Leumi USA, Bank Leumi le-Israel, B.M., or any other bank

• Subject to investment risks, including possible loss of the principal amount invested

© 2019 Bank Leumi USA. Leumi, Leumi Investment Services Inc., and Bank Leumi USA are registered trademarks of Bank Leumi USA. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities.

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