Economic Beat: Market Movement Comes from Unlikely Source
How will current market developments affect you? The thought leaders at Fifth Third Bank can help make sense of it all. Listen to the Economic Beat as they discuss what happened last week and what they expect will be the focus of this week.
Economic Beat: February 1, 2021
Most major global equity benchmarks fell last week, which can somewhat be attributed to concerns that retail trading was creating havoc. The major positive themes of prospects for domestic fiscal stimulus, vaccine optimism, and strong corporate earnings weren't enough to lift the markets. Listen to this week’s full Economic Beat update or read the transcript below.
Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
Most major global equity benchmarks fell last week. The S&P 500 Index fell 3.3% in total return, its biggest weekly decline in three months. The Dow Jones Industrial Average and the Nasdaq Composite were also down 3.3%, and 3.5%, respectively for the week. Equity returns for January were mixed, with the S&P 500 and Dow Jones Industrial Average down 1.0% and 2.0% year-to-date, while the Nasdaq Composite is up 1.4% in total return. Last week’s choppy trading week and negative equity returns can somewhat be attributed to concerns that retail trading was creating havoc, as the 4.4 million-member Reddit forum WallStreetBets continued to encourage retail traders to flood into several highly shorted stocks.
Treasury yields were little changed for the week, down 2 basis points to end the week at 1.07%. Gold finished the week at $1,848/ounce, down 0.4% for the week. West Texas Intermediate Crude Oil ended the week at $52.20/barrel, down 0.1% for the week. The major positive themes of prospects for domestic fiscal stimulus, vaccine optimism, and strong corporate earnings remained through last week, though they weren't enough to lift the markets.
Again, the market moving news last week came from an unlikely source. A Reddit forum WallStreetBets encouraged retail shareholders to pour into several highly institutionally shorted stocks. The targets were companies with largely broken business models whose stocks had short interest north of 100%. Retail investors bought shares and options (causing market makers to buy shares to hedge their positions), which created an incredible positive feedback loop leading to ~10x price increases in several names. The frenzy encouraged many large hedge funds to reduce their gross exposure to the market, with those position unwinds possibly contributing to the downward pressure in the broad indices last week.
Other macro news was largely ignored by markets last week. The Fed’s first meeting of the year was held with no policy changes. Chair Powell's remarks reaffirmed his recent messaging that rates will stay low for some time and that the Fed is not yet beginning to contemplate tapering asset purchases. Fiscal-stimulus stories continued to be bandied around in Washington, but there was little movement toward any resolution. Coronavirus headlines were positive, with daily case and hospitalization rates continuing to decline from recent highs and more upbeat news on vaccine developments. Still, concerns remained about the sluggish pace of vaccinations and the ongoing spread of new Covid variants.
It was a busy week on the domestic economic calendar last week. Preliminary data from the Commerce Department showed gross domestic product expanded at a 4.0% annualized rate in the fourth quarter, following record third quarter growth. Consumer spending, the biggest part of the economy, rose at a less-than-projected 2.5% pace. Jobless claims fell by more than expected in the week ended January 23, though they still remain more than four-times the pre-virus level. Monthly personal spending data showed U.S. household spending fell for a second straight month in December, while incomes rose with more pandemic relief late in the month.
In the week ahead, the Bank of England meets to set monetary policy. The central bank there is expected to leave policy unchanged. The U.S. economic calendar includes releases on ISM Manufacturing, factory orders, and the Bureau of Labor Statistics' monthly employment situation report. Economists are expecting that employers added modestly to payrolls in January, after a drop in payrolls in December.
As always, we’ll be watching and reporting back to you next week. Thank you.