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CCCM WEEKLY MARKET REVIEW

February 22nd, 2021

U.S. Markets: The major U.S. indexes finished the week mostly to the downside with the large-cap benchmarks and technology-heavy NASDAQ Composite index hitting record intraday highs before falling back.  The Dow Jones Industrial Average ticked up 0.1% to 31,494, its third consecutive week of gains.  The NASDAQ reversed most of last week’s gain finishing down -1.6%.  By market cap, the large cap S&P 500 gave up -0.7%, while the mid cap S&P 400 and small cap Russell 2000 retreated -0.4% and -1.0%, respectively.

U.S. Economic News: The number of Americans claiming first-time unemployment benefits rose last week to a four-week high, as Americans continue losing their jobs nearly a year after the onset of the coronavirus pandemic.  The Labor Department reported initial jobless claims rose by 13,000 to 861,000.  Economists had expected new claims would fall to 770,000.  New applications for jobless benefits rose the most in Illinois, California and Virginia, while the biggest declines took place in Texas and Georgia.  Continuing claims, which counts the number of people already collecting traditional unemployment benefits, fell by 64,000 to a seasonally adjusted 4.49 million.

Sales of existing homes ticked up 0.6% to a seasonally-adjusted annual rate of 6.69 million, the National Association of Realtors (NAR) reported.  Home sales were up 23.7% compared with the same time last year.  The median existing-home price rose to $303,900, a 14.1% increase from a year ago.  Furthermore, the inventory of homes for sale fell to record low of just 1.04 million units—that’s a 25.7 decline from the same time last year.  Overall, the market now has just a 1.9 month supply of homes for sale.  Economists generally consider a 6-month supply a balanced housing market.

Confidence among the nation’s home builders improved, but high construction costs remain a concern.  The National Association of Home Builders’ (NAHB) reported its monthly confidence index rose one point to 84 in February as foot traffic from home buyers improved.  The modest increase comes following two consecutive months of declines.  In the details, the index that measures sentiment of prospective buyers increased four points to 72.  Despite high demand, the NAHB voiced its concern over rising costs of building materials.  Chuck Fowke, current chairman of the National Association of Home Builders stated, “Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows.”

Manufacturing activity in the New York-region hit its highest level in seven months according to the latest report from the New York Fed.  The Fed’s Empire State business conditions index rose 8.6 points to 12.1 in February—more than double economists’ estimates.  Economists had expected a reading of just 5.9.  In the report, the new orders index rose 4.2 points to 10.8, while shipments fell 3.3 points to 4.  Notably, prices paid for goods jumped 12.3 points to 57.8 - the highest level since 2011.  Manufacturers’ expectations for business conditions in the next six months rose 3 points to 34.9.

Sales at the nation’s retailers jumped last month, as stimulus checks helped boost the nation’s economy.  The Census Bureau reported retail sales surged 5.3% in January, its first increase in four months and the largest increase in eight months.  Economists had expected just a 1% increase.  In the details, sales were strong in every category.  Department store chains, Internet retailers, electronic stores and home-furnishing outlets all recorded double digit percentage gains.  Bars and restaurants also registered a nearly 7% increase in sales after receipts had fallen three months in a row.  The increase in spending was fueled in part by $600 stimulus checks sent to millions of Americans and more generous unemployment benefits.  Economist Katherine Judge of CIBC Economics wrote in a note, “With additional fiscal stimulus on the way, new Covid cases trending lower, and many states moving to relax social distancing measures, the worst looks to be in the rear view mirror.”

Prices at the producer level posted their biggest surge since 2009, but some analysts stated it is unlikely to be sustained.  The Labor Department reported the Producer Price Index jumped 1.3% last month.  Economists had forecast a 0.5% gain.  Over the past 12 months, the rate of wholesale inflation climbed to 1.7 in January, from just 0.8% at the end of 2020.  Most of the increase in wholesale prices last month was tied to higher costs of gasoline, health care and financial services.  Energy prices have risen in the past several months as more people have resumed traveling, the weather has turned colder, and supplies have tightened.  The core rate of wholesale inflation, which strips out the often-volatile food and energy categories, also surged by 1.3%.  The increase in the core rate over the past 12 months nearly doubled in January to 2% from 1.1% in December and is now above pre-pandemic levels.

Minutes of the January meeting of the Federal Reserve showed officials were more optimistic about the long-term health of the economy.  The voting members of the Fed’s interest-rate committee agreed that expected progress on vaccinations and the change in the outlook for fiscal policy had improved the longer-run prospects for the economy so much that officials “decided that the reference in previous post-meeting statements to risks to the economic outlook over the medium term was no longer warranted,” according to the minutes.  Notably, Fed officials were seemingly not concerned about inflation, with “most” officials saying that inflation risks were weighted towards too low rather than too high.

Finally: For the past several months, small-caps have greatly outperformed large-caps.  Many observers have derided it as a “blow off” of excess that will soon reverse, but researchers at the Leuthold Group disagree.  Instead, they point out that similar periods of “extreme strength” have kicked off periods of multi-year leadership by small-caps.  The chart below, from The Leuthold Group, shows that in every one of the 7 prior instances of a 25% total-return differential between the 6‑month returns of the Russell 2000 small-cap index and the S&P 500 large-cap index, the dominance of the small-caps continued for another 2 to 10 years.  Thus, they argue that the surge in small-caps is more likely to be a “Kickoff” than a “Blow off”.


(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P Mid Cap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.


February 16th, 2021

(Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, CNBC, FactSet.)

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.  Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.



In the ever-changing landscape of finance we must ensure our clients are properly invested based upon their investment goals and objectives.

Peter Chapman




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