Things That Make You Go Hmmm…
By: George Boyan
This will be the final edition of the Capital Markets Weekly Update for 2020. We wanted to take a moment and thank you for subscribing and reading our commentary. We wish our readers a happy, healthy and prosperous New Year!
2020 was extraordinary due to the pandemic and the unprecedented fiscal and monetary response (which continues to this day, as the Congress is slated to vote on a $900bln round of stimulus later today). As we enter the final stretch of the year with holiday shortened trading days and light volumes, all indications point to U.S. equity markets posting positive returns for the year with the most significant contribution from Technology, Communication Services and Consumer Discretionary, and the largest drag being from the energy sector.
Macro Commentary:
By: Ariel Segal
Retail sales decreased by 1.1% in November, a significantly greater decrease than forecasted. The October and November contractions in retail sales mark the first drops since March and April.
The House and Senate will vote on government spending bill today, which includes a $900 billion deal for an aid package that was agreed upon yesterday. The plan includes a direct payment of $600 to Americans under a certain income level that is yet to be announced, and $300 per week in enhanced unemployment benefits through March. Both parties gave up demands to reach this deal including aid for states and cities as well as liability protections for employers. $284 billion of the package is for the Paycheck Protection Program.
Covid-19 vaccines are in full rollout mode with 2.84 million shots delivered and 556k administered after the first week. According to Mayor Bill de Blasio, more than 18k doses were administered in NYC as of Sunday.
Preliminary analysis in the U.K. suggests that a new variant strain of the coronavirus could be 70% more transmissible than other circulating strains. Concerns have led to an emergency lockdown in London and caused Canada, France, and Germany to halt flights to the U.K. According to Europe’s health regulator, Pfizer’s vaccine will still be effective against the variant.
Fixed Income Market:
By Joseph Colleran
Despite a moderate sell off today, investment Grade Corporate bonds continue to trend tighter and Hi Yield bonds are just off their record high levels. IG spreads are close to 3yr “tights” versus UST’s and HY bonds reached historic low yields last week. However, concerning news out of England today on a new strain of COVID has caused all risk assets to trade lower.
The selloff has been tempered to a degree by news out of Washington regarding bipartisan agreement on a $900 MM relief package. Overall trade volumes are light which is to be expected during the last two weeks of the year and the New Issue market has, for the most part, closed shop until first week of January.
The municipal market is also relatively quiet with prices mostly unchanged from last week.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $9.7 BLN
IG Bond Funds up $1.7 BLN
HY Bond Funds down $1.0 BLN
Municipal Bond Funds up $0.40 BLN
Prior Week:
Domestic Equity Funds down $3.2 BLN
IG Bond Funds up $5.9 BLN
HY Bond Funds up $1.2 BLN
Municipal Bond Funds up $0.32 BLN
MMKT Funds up $0.27 BLN
U.S Equities:
By: James Zurovchak
Once again, last week, all three major indices made all-time highs but retreated on Friday. NASDAQ led the way gaining 3.1%. S&P finished up 1.3%, and DJI gained a modest .5%. Energy (-4.1%) finally retreated as it was the only GICS sector down on the week. Communication services (+3.5%), Consumer Discretionary (+2.4%) and Technology (+2.2%) were the leaders. Growth outpaced Value +3.2% vs +0.2%. Small Caps kept pace gaining 3% on the week. Expect a volatile week ahead as the markets weigh the effects of the same three drivers: news that a morphed Covid-19 virus with 70% greater transmission rate could be the driving force of this latest resurgence, offset by the continued vaccine rollout and the newly approved stimulus package.
Foreign Exchange:
By Anthony Minardo
As we approach the final trading days of 2020 we remain optimistic of a full global recovery heading into the new year. Vaccinations are rapidly being produced and distributed as well as central banks providing economic stimulus. The markets have shifted their near-term concerns of the COVID pandemic towards the medium term outlook. A 900-billion-dollar stimulus plan was approved by congress over the weekend which has brought some disappointment to the equity markets and a temporary rally in the US dollar in a classic case of “buy the rumor sell the fact.” Liquidity and volatility will be a challenge the last two weeks of the year due to the holidays and year-end re balancing which historically point to a USD weakness.
Financial Planning:
By Brian Stigliano
2020 Gift Tax Rules
The year-end holidays are not the only reasons for an increase in gift giving. Many individuals use the end of the year to reduce the size of their potentially taxable estates through gifting. Here are some items to keep in mind when developing a plan:
- The 2020 annual exclusion is $15,000 per recipient; an individual can gift this amount to as many people/trusts as he or she wants without triggering a gift tax; gifting more than this amount will require a gift tax form (but may still not be taxable)
- The 2020 lifetime gift tax exclusion is $11.58 million; a gift tax will not be triggered in 2020 unless more than this amount has been cumulatively gifted during the individual’s lifetime; the 2021 exclusion will increase to $11.7 million
- The gift tax rate has a range between 18% and 40%
- Some exceptions to the gift tax include paying tuition or medical bills by sending payment directly to the provider (school or medical facility); one can pay an unlimited amount of these expenses without incurring gift taxes
- 529 plans allow for the ability to spread five years’ worth of the annual exclusion in a one-time gift (i.e. – $75,000 for 2020)
These are just a few of the items to keep in mind when developing a gifting strategy. Therefore, it’s best to include one’s tax advisor when deciding what to do.
Last Week's Economic Data For 12/21
| Last Week's Economic Data | Actual | Survey |
|---|---|---|
| Retail Sales Advance MoM | -1.1% | -0.3% |
| FOMC Rate Decision (Upper Bound) | 0.25% | 0.25% |
| Housing Starts | 1547k | 1535k |
| Initial Jobless Claims | 885k | 815k |
This Week's Economic Data For 12/21
| This Week's Economic Data | Release Date | Survey |
|---|---|---|
| GDP Annualized QoQ | 12/22/20 | 33.1% |
| Existng Home Sales | 12/22/20 | 6.70m |
| Durable Goods Orders | 12/23/20 | 0.6% |
| Initial Jobless Claims | 12/23/20 | 880k |
| Personal Income | 12/23/20 | -0.3% |
| New Home Sales | 12/23/20 | 995k |
| Interest Rates | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| 1 Month Libor | 0.15% | (0.8 bp) | (0.5 bp) | (163.5 bp) |
| 3 Month Libor | 0.24% | +2.6 bp | +4.0 bp | (169.0 bp) |
| 6 Month Libor | 0.26% | +1.3 bp | +1.2 bp | (166.0 bp) |
| 12 Month Libor | 0.33% | (0.2 bp) | (0.4 bp) | (166.7 bp) |
| Fed Funds Effective | 0.09% | (146.0 bp) | ||
| SOFR | 0.09% | +0.0 bp | +2.0 bp | (144.0 bp) |
| US Treasury Yields | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| 12-Month | 0.09% | +0.5 bp | (1.0 bp) | (142.4 bp) |
| 2-Year | 0.12% | +0.6 bp | (3.6 bp) | (150.8 bp) |
| 3-Year | 0.18% | +0.8 bp | (3.0 bp) | (148.0 bp) |
| 5-Year | 0.38% | +2.2 bp | +0.8 bp | (135.1 bp) |
| 7-Year | 0.66% | +3.2 bp | +5.1 bp | (118.9 bp) |
| 10-Year | 0.94% | +0.6 bp | (3.6 bp) | (150.8 bp) |
| 30-Year | 1.68% | +0.6 bp | (3.6 bp) | (150.8 bp) |
| US Swap Rates vs 3ML | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| 12-Month | 0.20% | +1.2 bp | (1.5 bp) | (160.7 bp) |
| 2-Year | 0.21% | +1.1 bp | (4.4 bp) | (151.9 bp) |
| 3-Year | 0.25% | +1.2 bp | (4.7 bp) | (146.4 bp) |
| 5-Year | 0.45% | +3.0 bp | (0.1 bp) | (129.8 bp) |
| 7-Year | 0.67% | +3.5 bp | +4.1 bp | (113.0 bp) |
| 10-Year | 0.94% | +4.2 bp | +8.7 bp | (94.7 bp) |
| 30-Year | 1.41% | +5.4 bp | +17.1 bp | (65.3 bp) |
| US Swap Spreads | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| 12-Month | +11 bp | +0.7 bp | (0.5 bp) | (18.3 bp) |
| 2-Year | +9 bp | +0.5 bp | (0.8 bp) | (1.1 bp) |
| 3-Year | +7 bp | +0.4 bp | (1.6 bp) | +1.6 bp |
| 5-Year | +7 bp | +0.8 bp | (0.9 bp) | +5.3 bp |
| 7-Year | +2 bp | +0.3 bp | (1.1 bp) | +5.9 bp |
| 10-Year | +0 bp | +3.6 bp | +12.4 bp | +56.1 bp |
| 30-Year | (27 bp) | +4.8 bp | +20.7 bp | +85.5 bp |
| Equity Markets | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| Dow Jones | 30,246 | +0.2% | +3.4% | +6.3% |
| S&P 500 | 3,695 | (0.4 %) | +3.9% | +14.7% |
| NASDAQ | 12,731 | (0.2 %) | +7.4% | +42.6% |
| Currencies | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| Euro | 1.2247 | +0.8% | +3.4% | +10.4% |
| Japanese Yen | 103.3200 | +0.7% | +1.2% | +5.9% |
| British Pound | 1.3445 | +0.9% | +0.9% | +3.9% |
| Canadian Dollar | 1.2825 | (0.5 %) | +2.0% | +2.5% |
| Australian Dollar | 0.7588 | +0.7% | +4.1% | +9.6% |
| Swiss Franc | 0.8848 | +0.2% | +3.2% | +11.0% |
| Israeli Shekel | 3.2450 | +0.4% | +3.1% | +7.1% |
| Bitcoin | 22,918 | +19.4% | +24.4% | +213.1% |
| Commodities | Current | WoW | MoM | YoY |
|---|---|---|---|---|
| Gold | 1,878 | +2.8% | +0.4% | +27.1% |
| Silver | 26 | +9.8% | +8.3% | +52.2% |
| Copper | 357 | +1.4% | +8.6% | +27.1% |
| Crude Oil | 48 | +1.6% | +13.3% | (21.0 %) |
Source: Bloomberg L.P.
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