Capital Markets Weekly Update - Leumi USA

Capital Markets Weekly Update

Things That Make You Go Hmmm…

By: George Boyan

Equity markets are once again making new all-time highs just as the first COVID vaccines are being administered in the United States.  Fixed income yields remain extraordinarily low with a commitment from the Fed for extremely accommodative policy for the foreseeable future.  The DJIA is now +5% YTD, versus the SPX +13.5%, and the NASDAQ +39%, despite 6.7% unemployment and a record number of small business closures in 2020.  Are we priced for perfection or can this melt up continue?

Furthermore, the old adage says that a rising tide lifts all boats—but should this apply to individual stocks?  We aren’t so sure.  It is rare to see rallies among recovery stocks, including the hotels, cruise lines, and airlines, as well as the stay-at-home stocks like video communication, cybersecurity and home-gym companies.  Can they both win? 

While we certainly have our views on these and a variety of other issues, these questions highlight the reason why maintaining a well-diversified portfolio that matches your investment objectives, and the patience to stay the course, are the most important aspects of investing. 

Macro Commentary:

By: Ariel Segal

The FDA authorized Pfizer’s Covid-19 vaccine for emergency use on Friday.  The first non-trial vaccine in NY state was administered to a critical care nurse that works in Queens, NYC. The U.S. is now the third developed Western country after the UK and Canada to have approved a vaccine.

Initial jobless claims jumped to a 3-month high last week, driven by business shutdowns. Continuing claims increased by 230,000, the first increase since August.

A potential federal spending bill is planned to be released as early as Tuesday. A Covid-19 stimulus package with $908 billion in assistance could also be attached to the bill. After President Trump signed a one-week spending bill extension, federal spending is set to run out on December 18th.

Michel Barnier, the EU’s chief negotiator, told a group of ambassadors that a trade deal with the U.K. could be completed as soon as this week. Negotiations concerning fisheries remain a staunch road block.

Fixed Income Market:

By: Allon Harris

High Yield bonds keep hitting new records while Investment Grade bonds are flat to slightly wider over the week.

High Yield bond yields decreased by 8bps over the past week to 4.98%, which is below the prior record low of 5.03% set in May 2013!

The primary driver behind this move (and I dare to say all financial markets in the U.S. this week) was the COVID-19 vaccine related news and hopes for bipartisan support of a relief bill.

IG spreads widened by 2bps over the week, with Technology widening by 3.5bps while energy tightened by 2bps. I would view this move as more of a correction and remember that IG spreads are still very close to historically tight levels.

In the New-Issue market we expect the usual late December slowdown but in the meantime the market is till red-hot and financial companies are taking advantage. They have been a staggering 75% of Decembers new issue volume.

Lipper fund flow this week was positive for IG, HY and U.S. government funds.

IG inflow fell to $2.9bln from $4.8bln last week.

HY went from outflow last week to a slight inflow this week.

U.S. Government swung to inflows of $1bln this week from outflows of $107bln last week

U.S Equities:

By: James Zurovchak

The equity markets continued to wrestle with three related themes:  the continued COVID-19 surge, the stimulus package talks, and the vaccine rollout, both timing and amount that will be available.  The coming days should add clarity to the vaccine questions as Pfizer first shipments went out this past weekend.  Last week all three major indices made all-time highs but retreated from those at the end of the week to close slightly down with S&P off .9%, NASDAQ down .7% and DJI lower by .5%.  Only 2 of 11 GICS sectors were up on the week with Energy (+1.2%), once again, leading the way and Communication services (+.6%) next in line. Technology (-3.1%) was the biggest loser followed by Real Estate (-2.5%) and Financials (-1.8%).    Value and Growth were roughly in line at -.7% vs -.8%.   Small Caps continued their outperformance gaining 1.2% on the week, bringing their gains to 27% QTD, 3 times the DJI and S&P in that span. 

Foreign Exchange:

By: Anthony Minardo

As we approach the end of a very extraordinary year filled with historical events, including the U.S. presidential elections and a global pandemic, the US dollar remains weak.

The FED will conduct the final FOMC meeting of the year on Wednesday. The USD has the potential to slide further if the FED’s decision is to add additional easing in some form. Historically the USD gets sold by US companies in December, with inflows in January due to

taxation issues.  We expect the USD to continue its trend lower over the final weeks of the year due to year-end flows.

The EU-UK negotiations continue, but have appeared to reach a stalemate.  There still remains a slight chance of an agreement by the December 31, 2020 deadline.

Financial Planning:

By: Brian Stigliano

Tax-Loss Harvesting

Since some sectors of the market have still not recovered from the COVID-19 induced selloff in February and March, there may be an opportunity to implement a strategy known as tax-loss harvesting as we head into year end.  The strategy consists of selling a security at a loss and replacing it with a similar security to preserve the portfolio’s asset allocation.  The capital loss allows you to offset capital gains that you may have from transactions earlier in the year (or that have yet to take place this year), thus lowering your capital gains tax liability.  Additionally, the purchase of the similar security allows you to capture any growth that you could have otherwise lost by being out of the market.  One element that is key to this strategy’s success is avoiding the IRS’s wash-sale rule.  The wash-sale rule is triggered when you sell a security at a loss and purchase one that is “substantially identical” within 30 days before or after the sale date.  Some common strategies to avoid the wash-sale rule are selling a stock and buying an ETF that tracks the same sector/industry, selling an actively managed fund and buying an index fund, or selling an index fund and buying an actively managed fund.

Last Week's Economic Data for 12/14

Last Week's Economic DataActualSurvey
Wholesale Inventories MoM1.1%0.9%
Initial Jobless Claims853k725k
CPI MoM0.2%0.1%
PPI Final Demand MoM0.1%0.1%

This Week's Economic Data for 12/14

This Week's Economic DataRelease DateSurvey
Retail Sales Advance MoM12/16/20-0.3%
FOMC Rate Decision (Upper Bound)12/16/200.25%
Housing Starts12/17/201535k
Initial Jobless Claims12/17/20815k

Market Data for 12/14

Interest RatesCurrentWoWMoMYoY
1 Month Libor0.15%+0.7 bp+1.7 bp(158.4 bp)
3 Month Libor0.22%(1.1 bp)(0.3 bp)(168.0 bp)
6 Month Libor0.25%(0.6 bp)+0.1 bp(165.6 bp)
12 Month Libor0.33%(0.3 bp)(0.5 bp)(162.9 bp)
Fed Funds Effective0.09%(146.0 bp)
SOFR0.08%(0.0 bp)(2.0 bp)(146.0 bp)

US Treasury YieldsCurrentWoWMoMYoY
12-Month0.08%(1.8 bp)(3.6 bp)(143.5 bp)
2-Year0.12%(2.6 bp)(6.4 bp)(148.9 bp)
3-Year0.17%(2.7 bp)(6.5 bp)(145.0 bp)
5-Year0.36%(2.9 bp)(4.9 bp)(129.6 bp)
7-Year0.62%(3.4 bp)(2.9 bp)(113.6 bp)
10-Year0.89%(2.6 bp)(6.4 bp)(148.9 bp)
30-Year1.63%(2.6 bp)(6.4 bp)(148.9 bp)

US Swap Rates vs 3MLCurrentWoWMoMYoY
12-Month0.18%(2.5 bp)(3.5 bp)(158.1 bp)
2-Year0.20%(2.9 bp)(6.7 bp)(148.2 bp)
3-Year0.24%(2.8 bp)(7.3 bp)(142.4 bp)
5-Year0.42%(2.9 bp)(5.0 bp)(126.7 bp)
7-Year0.64%(3.0 bp)(2.8 bp)(109.9 bp)
10-Year0.90%(3.1 bp)(0.8 bp)(92.0 bp)
30-Year1.36%(4.0 bp)+1.9 bp(63.4 bp)

US Swap SpreadsCurrentWoWMoMYoY
12-Month+10 bp(0.7 bp)+0.1 bp(14.6 bp)
2-Year+8 bp(0.3 bp)(0.3 bp)+0.7 bp
3-Year+7 bp(0.1 bp)(0.8 bp)+2.7 bp
5-Year+6 bp+0.0 bp(0.1 bp)+2.8 bp
7-Year+1 bp+0.5 bp+0.1 bp+3.8 bp
10-Year+1 bp(0.5 bp)+5.6 bp+56.9 bp
30-Year(27 bp)(1.4 bp)+8.3 bp+85.5 bp

Equity MarketsCurrentWoWMoMYoY
Dow Jones 29,991 (0.2 %)+1.7%+6.6%
S&P 500 3,665 +0.0%+2.2%+15.6%
NASDAQ 12,491 +0.9%+5.6%+43.0%

CurrenciesCurrentWoWMoMYoY
Euro1.2146+0.3%+2.5%+9.0%
Japanese Yen104.0500-+0.5%+5.3%
British Pound1.3326(0.4 %)+1.0%(0.0 %)
Canadian Dollar1.2764+0.3%+2.4%+3.1%
Australian Dollar0.7540+1.6%+3.0%+9.5%
Swiss Franc0.8868+0.4%+2.9%+10.8%
Israeli Shekel3.2571(0.1 %)+3.2%+7.4%
Bitcoin 19,162 +0.4%+14.7%+178.7%

CommoditiesCurrentWoWMoMYoY
Gold 1,826 (2.0 %)(3.3 %)+23.7%
Silver24(2.6 %)(3.3 %)+40.9%
Copper352+0.3%+10.7%+26.5%
Crude Oil47+2.6%+16.9%(21.9 %)

Source: Bloomberg L.P.

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.

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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