Service Sector Surprises to the Upside, Growing Inflation Expectations, and Could Small Caps Finally Be Poised to Climb?
January 8, 2021 | FIRESIDE CHARTS
The ISM Services PMI offered a pleasant surprise this week as the U.S. service sector continues to expand at a promising pace. Inflation expectations are climbing as officials continue their unprecedented efforts to spark growth…will people be prepared when it finally arrives? Meanwhile, as mortgage rates hit another record low, office vacancies in Manhattan soar to a record of their own. And following a tumultuous week that—among other headline events—saw Democrats win a majority in the Senate, we’re looking at return patterns established during similar governing scenarios to see what may be in store come January 20th.
1. Since about 70% of our economy is based on services, this is great news in the face of the pandemic…
Source: The Daily Shot, from 1/8/21
2. Market inflation expectations spent much of 2020 recovering, then consolidating, and now appear to be in another up-leg. Inflation is not fun, so we (and the Fed) should be careful what we wish for…
Source: The Daily Shot, from 1/7/21
3. What will the long-term implications be on rents and office space?
Source: The Daily Shot, from 1/8/21
4. Despite longer-term interest rates edging higher, mortgage rates continue to move lower?
Source: Freddie Mac, from 1/8/21
5. Now that the elections are complete, here is a look at the historic average returns under each governing scenario:
Source: The Daily Shot, from 1/7/21
6. Unlike the broader markets, small caps have historically performed well under a Democratic President and Congress…
Source: Bloomberg, BofA Equity & US Quant Strategy, from 1/8/21
7. A modern Dutch bulb mania? At least tulips look nice when they bloom…
Source: The Daily Shot, from 1/7/21
8. The long end of the yield curve steepened substantively over the past week. How will the Fed, with a near-zero policy declared through 2023, respond?
Source: The Daily Shot, from 1/7/21
9. The Democratic sweep has many thinking of multiple scenarios that contribute to inflation/reflation. The bond markets responded by closing the 10-year UST yield above 1% for the first time since March 2020…
Source: The Daily Shot, from 1/7/21
10. Inflation is subdued or even negative in Europe. Currency movement on both sides of the Atlantic is having an effect on inflation. As the USD weakens, foreign goods and services become more expensive and thus inflationary (The U.S. has a $1 trillion annualized trade deficit, exacerbating the effect). To Europeans, the strengthening Euro makes imports less expensive stoking lower inflation…
Source: HIS Markit, from 1/7/21
11. EM earnings, trade and currencies are all heading towards growth mode. Will this trend continue? Is it (finally) EM’s time to shine?
Source: The Daily Shot, from 1/8/21
12. Natural market expansion, future sales being pulled forward, or a little of both?
Source: Statista, from 1/8/21
13. We are all exhausted by Covid protection protocol, but we need to remember why:
Source: The Daily Shot, from 1/8/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.