U.S. markets rallied on Friday to close out the week in positive territory, thanks to a pause in the trend of rising interest rates. Fears that recent economic data would lead to a more hawkish approach from incoming Federal Reserve Chair, Jerome Powell, were calmed with the release of the minutes from the January Federal Reserve meeting. While the market recovery was broad-based, there continues to be a slight bias towards smaller cap stocks as witnessed by the 0.78% gain of the Russell 2000® Index, versus the 0.622% gain of the S&P 500® Index. Global markets were a very different story last week, as the MSCI EAFE® Index slipped 0.5%, while the MSCI Emerging Market Index added another 1.4%. In a case of the odd couple, this week witnessed leadership from an unlikely pair, as technology and utilities led with returns of 1.5% and 1.35%, respectively. The latter attributable to the sigh of relief on interest rates. Weakness last week was confined again to the consumer staples sector, largely due to the 10% drop experienced by Walmart shares, following the company’s report Monday afternoon that its e-commerce initiatives were faltering. Commodity prices experienced considerable volatility last week as energy prices added just over 3.5%, while industrial and precious metals slipped 1%. Agricultural prices were quiet for the week, as we approach the spring planting season and investors are awaiting news on planting intentions from the USDA.
Generally, stock price performance reflects capital flows. Money flows in, and prices go up, with the converse being true as well. Recently, however, this is not the case as certain flows and performance are in inverse alignment. One of the weakest sectors, not only year-to-date also but over the last twelve months, has been the energy sector. As you would expect to see, there has been considerable outflow from energy sector funds. Last week, over $592 million came out of energy ETFs alone. Information technology has experienced the opposite. With market leading performance year-to-date and over the last year, the sector added another $527 million in new purchases of related ETFs. So far, this makes sense, but now we come to this week’s losing segment and one that has struggled over the last year – consumer staples. This group picked up $274 million in new investments last week, dramatically reversing what had been an almost $1 billion per week outflow rate. It remains to be seen if this marks a turning point for this struggling group, or if it is simply an outlier in the data, but it bears watching. Along that same line, while stock prices halted their recent declines this week, it is important to watch the flow of funds. Typically, this is a seasonally strong period for money flowing into the stock market from pensions, 401(K) and IRAs. This month, we have experienced the reverse as recent market volatility has sent investors to the sidelines.
Source: All statistics herein obtained from Bloomberg.
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