Week from 1 to 7 February 2021
Stocks sharply rebounded to start the month of February on renewed hopes of further US stimulus and better-than-expected Q4 results, while concerns about volatile retail-led trading receded. The S&P 500 and Nasdaq therefore closed at record highs (3,886.83, +4.65%, and 13,856.30, +6.01%, respectively). Small cap stocks did even better (Russell 2000 up 7.70%, the best week since early June). CBOE’s volatility index (VIX) logically fell by as much as 37% (from 33 to less than 21).
All the S&P sectors finished in positive territory. Unlike the previous week, energy was the biggest gainer (+8.29% week-over-week) as oil prices continued to test new highs (WTI crude up 8.91% at $56.85 a barrel). Communication Services (+7.26%), Financials (+6.59%), Consumer Discretionary (+5.99%), Tech (+4.88%, bolstered by Google-Alphabet which rose 14.29% thanks to strong advertising revenue growth), and Industrials (+4.88% too) fared well. Health care lagged behind the pack (+0.50%).
It was also a bullish week for the European majors that recovered from the severe losses suffered last week (MSCI EMU up +4.62%). Overall APAC markets followed suit (Nikkei: +4.03%, Kospi: +4.85%, Hang Seng: +3.55%, though January’s Caixin Services PMI fell to 52 from 56.3 in December).
On the interest rate front, upbeat economic data for the US economy pushed long-term government bond yields higher (US 10-year T-note yield jumping to +1.19% from +1.11%) while the return on T-Bills was moving closer and closer to zero (3-month T-Bill: +0.03%), thereby leading to the steepest yield curve in 5 years. Corporate bond indices posted contrasted performance (investment-grade corporate bonds: +0.01% in Europe compared with -0.60% in the US; high-yield bonds: +0.70% in Europe, +0.81% in the US). Market conditions were also favorable for emerging debt (+0.38% in local currencies).
Elsewhere, gold fell -1.97% to $1,810.90/oz, while EUR/USD traded 1% lower as higher yields were attracting buyers of long-term US Treasuries.
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