Week in Review


Week in Review: January 15, 2021 

A Bridge Over Troubled Waters


U.S. equities closed the second week of the year lower, as weaker-than-expected economic data and concerns that President-elect Joe Biden’s stimulus plan might face some bipartisan roadblocks dampened investors’ risk appetite. With the Democrats poised to take control of the Senate, Biden upped the ante yesterday by unveiling plans for a nearly $2 trillion stimulus package to combat the economic downturn and health crisis caused by the COVID-19 pandemic. Still, with a 50-50 split in the chamber and a narrow Democratic majority in the House, the proposal will require support from not only Republicans but also moderate legislators and more conservative members of the Democratic Party. While prospects for additional fiscal stimulus had powered a broad rally in recent weeks, momentum moderated as market participants anticipated that it will take some time for policymakers to negotiate and deliver more economic assistance. After climbing to a nine-month high earlier in the week, bolstered by improving economic expectations, the 10-year Treasury yield backtracked on Friday as investors digested disappointing economic data highlighting the fact that the economy is facing downside pressure in the near term amid a slower-than-planned vaccine rollout and new virus variants.

In our 2021 outlook titled “A Year of Two Bridges,” we noted that as the year progresses, broader vaccine distribution will gradually restore household confidence, while stronger incomes, increased fiscal stimulus and improving health conditions will fuel the nascent recovery. However, despite a brighter outlook for later in the year, the pandemic has dealt a setback to the economy in recent months and poses a risk of delaying the pace of recovery. A winter record-breaking resurgence of infections and casualties prompted states around the nation to reimpose new business restrictions, sending hiring into reverse as first-time claims for unemployment insurance jumped to 965,000 last week and the economy lost 140,000 jobs in December (see Figure 1). The pace of new jobless claims accelerated last week to its highest level since August 2020, with low-income jobs in restaurants, bars and other high-contact service sectors the most affected. In turn, the relentless spike in COVID-19 cases and the renewed weakness in the labor market weighed on consumer confidence, indicating that Americans may be growing less optimistic. A separate report showed that retail sales decreased for the third consecutive month, providing evidence that consumers remained reluctant to spend heading into the new year (see Figure 2). On an encouraging note, while near-term headwinds suggest that the recovery will remain in low gear in Q1, the outlook will brighten in the spring as vaccine distribution accelerates. Thereafter, historically elevated savings and strengthening employment should translate into a strong consumer spending rebound as pent-up demand is released from Q2 onward.

Amid prospects for more fiscal stimulus, some market participants have raised concerns about rising inflation. However, the latest reading from the Consumer Price Index indicated that underlying inflation remained tame in December as the economy continued battling the effects of the pandemic. While the government’s supportive efforts to boost the economy have driven inflation expectations higher in the near term, Fed Chairman Jerome Powell stated this week that it’s unlikely that price pressures would lead to persistently higher inflation given the fragile labor market backdrop. Still, Powell agreed that prices might rise once the economy recovers and spending normalizes and, in turn, reassured financial markets of the central bank’s willingness to tolerate higher prices until the Fed sees “substantial progress” toward its employment and inflation targets. In addition, he commented that the Fed will continue to purchase long-term assets until the economy is on a stronger economic footing, easing concerns that the central bank could reduce the pace of its asset purchases if the economy shows signs of a swifter recovery this year. Lastly, Powell stated that the time will eventually come for the Fed to raise its policy fed funds rate above zero but said, “That time, by the way, is no time soon.”

Looking forward, we expect the broad economic recovery to face headwinds in early 2021, but activity to improve over the course of the year as immunizations rise, businesses reopen, and government transfers provide another boost to incomes. In our view, Biden’s push for another major fiscal stimulus — on top of the unprecedented support the economy has already received — suggests that the prospects for spending growth later this year are looking brighter. But with the vaccine rollout and continued need for social distancing unlikely to allow a widespread reopening of the economy for some additional months, the near-term outlook could remain lackluster. Nevertheless, we believe that health conditions will materially improve as the distribution of vaccines gains momentum throughout the year, paving the way for broader reopening trends. On a positive note, a single-shot COVID-19 vaccine from Johnson & Johnson showed very strong results in early clinical trials this week, potentially providing a significant boost to U.S. vaccination efforts. In the current investment landscape, we favor cyclical stocks over defensive, with non-U.S. opportunities emerging as balance sheets and profit margins of international companies begin to improve. Value stocks are also expected to outperform their growth counterparts underpinned by greater operating leverage upside. On the fixed income front, short-term interest rates should remain pinned near zero, but the yield curve may steepen further as a result of inflation expectations and anticipation of more stable growth in 2022. Some risks we’ll continue monitoring this year include a delayed distribution of vaccines, more virulent strains of COVID-19, political polarization and gridlock, potential policy mistakes, higher-than-expected inflation, and the possibility of broadening tensions with China.


Figure 1: U.S. nonfarm payrolls (in millions) 

  nonfarm payroll

Source: Thomson Reuters (as of January 15, 2021)


Figure 2: Retail sales (monthly change)

  1-15-21 Retail sales

Source: Thomson Reuters (as of January 15, 2021)



Market Returns (USD) as of 1/15/2021





Global Equities

MSCI All Country World

0.6% 2.4% 2.4% 17.3%

S&P 500

-0.2% 1.1% 1.1% 17.7%

Dow Jones Industrial Average

-0.2% 1.3% 1.3% 9.6%


0.3% 1.8% 1.8% 43.0%

Russell 2000

2.8% 9.2% 9.2% 30.3%

First Republic Founders Index

3.2% 7.5% 7.5% -

Russell 1000 Equal Weighted

1.3% 4.6% 4.6% 20.7%


0.8% 2.9% 2.9% 10.5%

MSCI Emerging Markets

3.7% 6.2% 6.2% 22.4%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.0% 0.0% 0.0% 3.4%

Bloomberg Barclays Intermediate Government/Credit

-0.1% -0.4% -0.4% 5.7%

Bloomberg Barclays High Yield Bond

0.1% 0.3% 0.3% 6.8%

JPMorgan GBI Emerging Markets Global Diversified

0.0% -0.6% -0.6% 2.1%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3795.54 3803.79 3756.07 3289.29

Dow Jones Industrial Average

30991.52 31041.13 30606.48 29030.22

10-Year U.S. Treasury Yield (Constant Maturity)

1.15% 1.08% 0.93% 1.79%

Gold ($/oz)

$1,846.53 $1,913.95 $1,895.80 $1,552.79

Crude Oil ($/barrel)

$53.57 $50.83 $48.52 $58.23

U.S. Dollar / Euro ($/)

1.22 1.23 1.22 1.11

U.S Dollar / British Pound ($/£)

1.37 1.36 1.37 1.30

Japanese Yen / U.S. Dollar (¥/$)

103.85 103.81 103.25 109.92