Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Macro Commentary: 

By: Ariel Segal

The upward revision for the January retail sales number balanced out February’s reported -3.0% mark, which was below the surveyed -0.5% estimate. Inclement weather in large portions of the country slowed down sales, but March sales are expected to pick up again with the warmer weather and fresh round of stimulus.

Existing home sales came in below estimates, with its lowest level since August. Rising mortgage rates and higher asking prices due to limited supply have decreased the current affordability. However, the reason to a lower number of sales is due more to lack of supply rather than less demand at these price levels.

Officials in at least 20 states have committed to opening vaccine appointments to all adults in either March or April, ahead of President Biden’s deadline of May 1st. Over 447 million vaccine doses have been distributed worldwide, with 130 million of them being distributed in the U.S.

Fixed Income Market:

By Joseph Colleran

For the first time in five weeks, Corporate Bond spreads have tightened versus UST’s, albeit slightly.   IG spreads were 2-3 basis points tighter on the week while HY bonds tightened 5bps.  It should be noted that this occurred in the midst of the continuing rise in UST yields, so although corporate spreads tightened versus USTs, they were actually higher in yield /lower in price week over week.   The biggest story was Fed Chairman Powell’s much anticipated commentary following Wednesday’s announcement that the Fed (as expected) left the benchmark Fed Funds range unchanged at 0 – 0.25%.  In his comments, Powell reiterated his lack of concern regarding the recent spike higher in UST rates.  In many market participant’s eyes, this paves the way for a continuing rise in yields as well as a steeper curve.   The UST 10yr currently sits at 1.70% up from 1.60% last week. 

In the near term, the $1.9 TRILLION relief/stimulus package is helping to sustain the equity and corporate bond rallies as both markets continue to hold their momentum.  We caution our clients regarding purchasing long duration corporates as we continue to believe rates will trend higher which will negatively impact bonds with longer maturities. 

  Lipper Fund flow data for the week showed:    

      Domestic Equity Funds     down    $0.6 BLN

      IG Bond Funds                       up      $5.4 BLN

      HY Bond Funds                      up      $0.4 BLN 

      Municipal Bond Funds         up      $1.05 BLN

Prior Week:

     Domestic Equity Funds      down    $0.6 BLN

     IG Bond Funds                      up       $3.3 BLN

      HY Bond Funds                   down    $5.3 BLN 

      Municipal Bond Funds        up       $0.9 BLN

U.S Equities:

By: James Zurovchak

Both DJI and S&P 500 set new all-time closing highs again last week, however neither could hold onto their gains finishing -0.5% and -0.7% respectively.   NASDAQ fared no better finishing -0.8% on the week.   The US 10yr Treasury continues to weigh on the equity markets as yields hit 1.75%, a 1+ year high, reflecting growing fears of inflation that were stoked by Fed Chairman Powell reiterating that they are willing to let inflation rise above 2% in the short term.   He echoed the Fed’s sentiment that the inflation spurred by the reopening of the economy will be transient.   9 of 11 GICS sectors were down on the week, led lower by Energy (-7.5%), Financials (-1.6%) and Technology (-1.4%).   Health Care (+0.4%) and Consumer Staples (+0.4%) were the only gainers on the week.  Value and Growth were on par with each other finishing -0.8% and -0.9% respectively.    Small Caps underperformed this week posting a 2.8% decline.   With 10yr US Treasury firmly in oversold territory, many are looking for a relief rally that will spur the equity markets higher in the short term.  

Foreign Exchange:

By Anthony Minardo

The message at last week’s FOMC meeting was exactly what Chairman Powell has been reiterating over the past few months.

The Fed continues to be very transparent, they are in no rush to raise interest rates, despite the signal of stronger growth as the economy recovers from the COVID pandemic and vaccines continue to be readily available.  The Fed was clear that they will be data dependent when acting on future rate decisions and will not be influenced by the forecasts of the street.  

The US dollar began the week stronger on the back of a 15% decline in the Turkish Lira when CB governor Agbal was fired by Turkish president Erdogan.  The move was short lived, and the markets have settled back into the recent range and will continue to be influenced by the bond market and Fed speakers throughout the week. 

Financial Planning:

By Brian Stigliano 

What Is Bond Duration?

A bond’s duration refers to its sensitivity to changes in interest rates.  In general, the greater the bond’s duration, the more its price will fall when interest rates rise (or rise when interest rates fall).  The two primary factors that affect a bond’s duration are its time to maturity and its coupon rate.  

It’s important to note that a bond’s maturity does not necessarily equal its duration (unless it’s a zero-coupon bond).  Bonds that have a shorter time to maturity will be less affected by changes in interest rates whereas bonds with a longer time to maturity will be more affected.  Therefore, an investor should be properly rewarded for taking on more duration risk.

A bond with a greater coupon rate will have a shorter duration and a bond with a lower coupon rate will have a longer duration.  This is because the greater coupon rate helps an investor recapture the original cost faster than a bond with a lower coupon rate.    

An investor should consider a bond’s duration when making an investment as a bet on which way interest rates may move and when there may be a use for the money.  For example, one would want to invest in long duration bonds if he/she is confident that interest rates will be falling.  Conversely, one would want to shorten the duration of a portfolio if he/she believes that interest rates will be rising.   

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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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