Nationwide’s Chief of Investment Research and the Nationwide Economics team offer daily and weekly commentary and analysis of the equity and bond markets, including an overview of economic data being released, global market news, commodities and market performance by index returns. These timely insights can help you navigate markets and understand emerging trends.
The rapid climb in new COVID cases and creeping state and local restrictions on business activity are making an increasing dent in the labor market and the economy at large. The recent pickup in vaccine distribution is an encouraging sign that the slowdown won't be especially long-lived, but Thursday’s numbers are another strong hint that it will intensify before it runs its course.
With the current benchmark bond yield just over 1%, there is little income buffer to protect bond investors against a rise in rates. It’s a different climate than bond investors are used to. Many may not be prepared for losses in their bond investments.
The core CPI moved higher by just 0.1 percent in December to hold at +1.6 percent on an annual basis for a third straight month. Medical care and recreation prices both fell while rents continued to rise only slowly, offsetting another big gain in the apparel component. Breadth was again weak overall, as the median CPI also increased by 0.1 percent and is now up by a three-year low 2.2 percent annually.
The new COVID infection rate continues to climb and while state and local government restrictions have yet to be aggressively ramped up on balance, the growing lockdowns around the world should serve as a hint of what may be possible in the U.S. in the weeks ahead. England reinstituted a stay-at-home order last week while China this week issued home isolation mandates for three major cities in Hebei province. Several other countries are mulling similar measures and, with many U.S. states having linked re-opening to county-by-county case rates last year, the scope is very much in place for more widespread shutdowns domestically as well.
With the renewed stimulus program in place, we estimate growth in 2021 should accelerate to around 5.0% for the year, with Q1 growth up to an annual rate of 2.5%. That would be fastest pace of annual growth since 1984.
Fourth quarter earnings season gets underway this week, with the banks again in the leadoff position. JPMorgan, Citigroup, and Wells Fargo all report on Friday while Bank of America is on tap for early next week. These have been heady days for the bank stocks, as the S&P subgroup was up by 32.2 percent in Q4, outpacing the broader market by more than 20 full percentage points due to rising long-term interest rates and an improving economic outlook.
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