Major U.S equity indexes pulled back sharply last week. The S&P 500 achieved its biggest weekly decline in four weeks, while the Nasdaq suffered its worst loss since October 2020. Consumer discretionary and technology shares were weak, and dropped lower in part by a steep decline in Tesla and Apple shares. The winning industry last week was the energy sector, driven by increasing oil prices. In addition, last week marked a new rotation into cyclical shares as vaccine progress fueled market sentiment regarding the reopening of the global economy. The shift led value stocks to outperform growth stocks.
Much of the pullback can be attributed to fears among investors that inflation will rise, and there also bond yields. Consumer inflation data earlier this month, however, surprised negatively, whereas producer prices rose by 1.3% in January. The latter was much higher than consensus, and the largest increase in data since 2009. Inflation was also strong in the housing sector, which had increased by 10.1% compared to December 2020. Likewise, lumber futures reached all-time highs, and also copper prices have been increasing.
In Europe, shares also fell along. It has been quite a volatile week in Europe as well due to growing concerns that the ECB might have to act sooner than expected to pressure inflation down. The Europe 600 STOXX ended 2.38% lower. Major European stock indexes declined, as did the UK’s FTSE 100 Index, which came under pressure from a stronger British pound. The currency rose to its highest level in almost three years, reaching USD 1.42.
In Asia, Japan’s stock market tumbled on friday. The Nikkei 225 Stock Average declined 3.5%, and closed at 28,966.01. However, it is still ahead 5.5% for the year-to-date period. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, logged similarly punishing weekly losses. The yen weakened and closed above JPY 106 versus the U.S. dollar. Chinese shares fell in tandem with the global sell-off. The Shanghai Composite Index shed 5.1%, while the large-cap CSI 300 Index fell 7.7% in its worst weekly performance since October 12, 2018, according to Reuters.
Looking at the economic calendar last week. U.S. Weekly jobless claims hit the lowest level (730K) in three months. Personal incomes in the U.S. jumped 10.1% in January, which was reported last friday. This was largely due to payments from the coronavirus relief package passed in December. The manufacturing sector remained in solid shape, with core (excluding defense and aircraft) capital goods orders rising 0.5%. Q4 German GDP data were revised up to a growth rate of 0.3% from an initial estimate of 0.1% on strong exports and solid construction activity. The full-year figure increased to -4.9% from -5.0%. The eurozone Economic Sentiment Indicator rose to 93.4 in February, the highest since March last year. Separate surveys showed consumer confidence improving in Germany and Italy.
For the first time since mid-2019, Reuters monthly Tankan Index recorded a positive reading among manufacturers. The sentiment index rose to 3 from -1 in January, reflecting strengthening conditions in chemicals and manufactured foods. The survey also showed that sentiment is expected to continue rising over the next three months, in part due to improving business conditions and a more vibrant global economic environment.
Moving to the investment competition! It was a real rollercoaster last week, with many changes in the rankings. Only Batavia investments was able to make positive returns this week, and two other groups made no returns. All other investment groups earned a negative return. Merx, this week, is our number one investment group with a B&R M^2 of 14.74%. Concordia International took the second spot, and also gained 7 positions, with a M^2 13.50%. Vico and Quants of Minerva, on the other side of the spectrum, achieved a wonderful M^2 of -10.19% and -11.24, respectively. In terms of rankings, Batavia profited this week, and gained 14 positions. Heij Fidelity, unfortunately, lost 17 positions.
Meanwhile in the second Investment Competition, things are looking equally grim as no group managed a positive return this week. The top contender remains unchanged as Aurelia continues to top the charts, however New Rotterdam Investments has overtaken iValue Investments, thereby taking the third spot.