Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity benchmarks rallied last week, after the S&P 500 Index saw its worst weekly decline since October in the previous week. The S&P 500 surged 4.7% in total return for the week, closing at a new all-time high. The tech-heavy Nasdaq Composite added 6.0% and the blue-chip Dow Jones Industrial Average gained 3.9%. The 10-year U.S. Treasury yield rose 9 basis points amid a risk-on tone in markets. The yield curve, or the spread between 2-year and 10-year U.S. Treasury yields widened to the most since 2017. Crude oil prices set a one-year high in New York on Friday amid continued production cuts and vaccine optimism.
Investors were encouraged by the potential for additional fiscal stimulus and a continued decline in COVID-19 cases. Stimulus expectations ratcheted higher after the U.S. Congress cleared a major hurdle that will allow Democrats to move an economic relief package without Republican votes. Treasury Secretary Janet Yellen said over the weekend that the U.S. can return to full employment in 2022 if Congress enacts a robust enough stimulus bill. Vaccine news remained largely positive, as the rollout gains traction and as a third vaccine is on track to receive emergency use authorization in the coming weeks. COVID-19 cases and hospitalizations continued to improve.
Earnings season continued, with just under 60% of the S&P 500 Index now having reported fourth quarter 2020 results. According to FactSet, 81% of those companies that have reported have beat consensus earnings estimates, better than the one- and five-year averages.
On the economic calendar, the Institute for Supply Management's Manufacturing Purchasing Managers Index, or PMI, eased in January to a level of 58.7 from 60.5 in December. Readings above the level of 50 indicate the manufacturing sector is expanding. The Services PMI unexpectedly accelerated to an almost two-year high in January. Several releases shed light on the state of the U.S. labor market. Weekly jobless claims fell for a third straight week to the lowest level since the end of November, signaling that job cuts could be slowing along with COVID-19 infection rates.
The Bureau of Labor Statistics reported that nonfarm payrolls increased by 49,000 in January, following a 227,000 decline in December that was worse than previously reported. Economists had expected a larger increase in jobs. The unemployment rate unexpectedly fell to 6.3%, as the labor force participation rate ticked slightly lower. The disappointing jobs data may strengthen the case for another large stimulus package, a point that helped propel equity markets in Friday trading.
In the week ahead, the U.S. economic calendar includes consumer inflation data, small business optimism and the Job Openings and Labor Turnover Survey, or JOLTS report. Federal Reserve Chair Jerome Powell speaks on a webinar hosted by the Economic Club of New York Wednesday. His comments will be closely examined for clues on the path for monetary policy ahead. The U.S. Senate also begins former President Donald Trump’s second impeachment trial this week.
As always, we’ll be watching and reporting back to you. Thank you.