By: Ariel Segal
Beating all estimates, nonfarm payrolls increased by 916k in the month of March. This is the largest increase since August and the unemployment rate fell to 6%. A surge of 280,000 jobs in leisure and hospitality was the largest contributor to job gains.
President Joe Biden revealed a $2.25 trillion U.S. infrastructure plan on Wednesday last week. The plan includes $620 billion for transportation and $650 billion for initiatives such as cleaner water and high-speed internet. Corporations, through a tax hike from 21% to 28%, would be the chief payers of the plan. It is possible that this plan could be passed without GOP support using budget reconciliation, which only needs a simple majority to pass. House Speaker Pelosi plans to push the infrastructure bill through her chamber by July 4th.
NJ will have Covid-19 vaccinations open to all residents ages 16 and older by April 19th while NYC’s vaccination program has been speeding up with over 500k doses administered. 658 million vaccine doses have been given worldwide, with 165 million of them be given in the U.S.
Fixed Income Market:
By Joseph Colleran
Spread tightening has resumed in both the IG and HY markets. Though last week’s trading levels were extremely light due to the Easter and Passover Holidays, the tightening has continued this morning. Week over week, IG spreads are in by 5-6 bps, while HY names are higher by an average of a point which translates into approx. 15 bps on a 7yr maturity. As we briefly mentioned in last week’s writing, the strong performance in HY is taking place despite a record level of new issuance. This exemplifies the ongoing quest for yield and is furthered by the continuing upward trend in US equities. Recent very favorable economic releases add to the momentum and it appears the trend higher will continue as we enter into Q2.
As has been the case since mid -February, we continue to see strong client demand in the structured note sector. This is driven by both the low yield provided by traditional corporate bonds as well as many S/N deals being called away from clients leaving them with more investible cash.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $1.1 BLN
IG Bond Funds up $1.7 BLN
HY Bond Funds up $0.8 BLN
Municipal Bond Funds down $0.6 BLN
Domestic Equity Funds down $4.9 BLN
IG Bond Funds up $3.3 BLN
HY Bond Funds down $1.4 BLN
Municipal Bond Funds up $0.4 BLN
By: James Zurovchak
Despite US Treasury yields moving back above 1.70% last week, equities weathered the storm as all three majors finished the week in positive territory with NASDAQ up 2.6%, S&P 500 up 1.2% and DJI up 0.3%. Both DJI and S&P500 set new all-time highs last week and NASDAQ repaired some of the technical damage done over the last month. The rotation away from growth and into cyclicals took a breath last week with 6 out of 11 GICS sectors finishing in the green. Information Technology (+2.1%) and Consumer Discretionary (+2.0%) lead while Consumer Staples (-0.9%) and Health Care(-0.6%) were the worst performers. Growth outperformed Value +2.3% vs 0.3%. With the markets closed last Friday for Good Friday, the Labor Department reported an increase of 916K in nonfarm payrolls vs 675K expected, reflecting the much-anticipated economic breakout. Themes for the week will continue to be Biden’s infrastructure spending bill and the economic recovery vs inflation.
By Michael Maiorana
The U.S. dollar opens the week marginally lower from the previous week. Friday’s strong employment numbers were the highlight, but surprisingly had little immediate impact on the currency markets. The FX markets seem to be digesting the outstanding numbers. Nonfarm payrolls ballooned by +916,000, coupled with a higher revision of February’s payrolls (+89,000). The unemployment rate also dropped from 6.2% to 6.0% (as forecasted). The US dollar strength trade appears to be taking a breath from the recent two-month move higher where the greenback gained ~4-5% vs most major currencies. I believe the US dollar strength will continue throughout 2021 as the Fed will eventually need to re assess its stance on leaving rates unchanged until 2023.
By Brian Stigliano
Active vs. Passive Investing
Many arguments have been made for active investing over passive investing and vice versa. Similar to the political debates of Republican vs. Democrat, there may be no “correct” answer, just an answer that works better for your particular situation and preferences. The best solution may even be a combination of the two strategies.
What do we mean by active vs. passive? In its simplest terms, active investing involves the use of a portfolio manager (or management committee) to conduct extensive qualitative and quantitative research in order to outperform a particular benchmark (i.e. – S&P 500) while passive investing simply mimics a benchmark. With such different methods, there are pros and cons to each.
The benefits of active investing include increased flexibility (the ability to hold out of benchmark positions), the ability to hedge (reducing high risk and/or low return positions), and better tax control (harvesting losses to offset gains). The drawbacks of active investing include generally higher fees (more labor and resources are required) and the fact that there may be significant performance drift from the benchmark.
The benefits of index investing include low fees, transparency (same/similar holdings as benchmark), and tax efficiency (less capital gains taxes). The drawbacks of passive investing include a lack of flexibility (the inability to increase/reduce positions in the underlying index) and the fact that you are guaranteed to never outperform the benchmark.
This Week's Economic Data 4/05
|Interest Rates||Current||WoW||MoM||YoY||US Swap Spreads||Current||WoW||MoM||YoY|
|1 Month Libor||0.11%||+0.1 bp||+0.1 bp||(90.6 bp)||12-Month||+16 bp||+0.5 bp||+4.6 bp||(36.8 bp)|
|3 Month Libor||0.20%||+0.7 bp||+1.6 bp||(123.7 bp)||2-Year||+14 bp||+0.9 bp||+3.5 bp||(12.4 bp)|
|6 Month Libor||0.20%||(0.3 bp)||+0.1 bp||(99.4 bp)||3-Year||+18 bp||+2.0 bp||+5.1 bp||(0.5 bp)|
|12 Month Libor||0.28%||(0.0 bp)||(0.3 bp)||(72.2 bp)||5-Year||+12 bp||+2.2 bp||+2.2 bp||(4.4 bp)|
|Fed Funds Effective||0.07%||+2.0 bp||7-Year||+4 bp||+1.4 bp||(0.5 bp)||(8.0 bp)|
|SOFR||0.01%||(1.0 bp)||10-Year||+4 bp||(1.3 bp)||+10.0 bp||+109.5 bp|
|US Treasury Yields||Current||WoW||MoM||YoY||30-Year||(22 bp)||(5.8 bp)||+6.4 bp||+134.4 bp|
|12-Month||0.06%||+0.3 bp||(1.5 bp)||(7.1 bp)||Equity Markets||Current||WoW||MoM||YoY|
|2-Year||0.17%||+3.0 bp||+3.4 bp||(5.9 bp)||Dow Jones||33,549||+1.2%||+6.9%||+56.7%|
|3-Year||0.36%||+4.6 bp||+5.3 bp||+6.0 bp||S&P 500||4,079||+1.5%||+5.4%||+61.4%|
|5-Year||0.94%||+4.9 bp||+13.8 bp||+55.2 bp||NASDAQ||13,713||+1.7%||+2.7%||+83.2%|
|7-Year||1.40%||+3.3 bp||+16.3 bp||+88.5 bp||Currencies||Current||WoW||MoM||YoY|
|10-Year||1.71%||+3.0 bp||+3.4 bp||(5.9 bp)||Euro||1.1810||+0.4%||(0.9 %)||+9.4%|
|30-Year||2.37%||+3.0 bp||+3.4 bp||(5.9 bp)||Japanese Yen||110.1800||(0.3 %)||(1.7 %)||(0.9 %)|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY||British Pound||1.3902||+1.0%||+0.4%||+13.7%|
|12-Month||0.22%||+0.7 bp||+3.1 bp||(43.9 bp)||Canadian Dollar||1.2525||+0.5%||+1.1%||+12.7%|
|2-Year||0.31%||+3.8 bp||+6.9 bp||(18.2 bp)||Australian Dollar||0.7652||+0.2%||(0.4 %)||+25.7%|
|3-Year||0.54%||+6.6 bp||+10.4 bp||+5.5 bp||Swiss Franc||0.9365||+0.3%||(0.8 %)||+4.5%|
|5-Year||1.06%||+7.0 bp||+16.0 bp||+50.8 bp||Israeli Shekel||3.3099||+0.7%||+0.5%||+8.5%|
|7-Year||1.43%||+4.8 bp||+15.8 bp||+80.6 bp||Bitcoin||58,890||+2.9%||+20.1%||+714.4%|
|10-Year||1.75%||+1.7 bp||+13.3 bp||+103.7 bp||Commodities||Current||WoW||MoM||YoY|
|30-Year||2.15%||(2.8 bp)||+9.8 bp||+128.5 bp||Gold||1,727||+0.9%||+1.5%||+6.5%|
|Source: Bloomberg L.P.||Crude Oil||59||(4.8 %)||(11.3 %)||+106.8%|
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