U.S. equities resumed their winning ways last week after a one-week hiatus, as the S&P 500® index gained 1.9 percent. Most of that gain came on Inauguration Day, after which the rally petered out as the new administration began to settle in. The index is now higher on the year by 2.3 percent. Both the dollar and the ten-year note yield were little changed on the week.

In his first three days in office, President Biden signed thirty executive orders across a range of issues, providing immediate insight into the intended direction of policy. Many of them related in one way or another to the pandemic. They included emergency food assistance for lower income families and additional assistance for the unemployed, and expanded manufacturing of vaccines, protective equipment and testing. The list also included support for community vaccine centers, virus data collection and analysis, support for therapeutics development, a requirement that masks be worn on federal properties and planes and trains, the launch of a 100-day masking challenge for the public, support for the international pandemic response, halts for the U.S. exit from the World Health Organization, guidance for reopening schools, and it creates the position of Covid-19 Response Coordinator. The moratorium on evictions and foreclosures was extended, as was the pause on student loan payments.

Other executive orders restored collective bargaining for federal employees, set in motion an increase in the minimum wage to $15 for federal contractors, and that the U.S. would rejoin the Paris Climate Accord. The President also ordered government agencies to ensure racial equity, rescinded the 1776 Commission, and initiated actions to prevent workplace discrimination on the basis of sexual orientation or gender identity, strengthen the Dreamers program, require non-citizens be included in the census, remove the ban on entry from seven Muslim-majority countries, reverse the Trump administration’s expansion of immigration deportation enforcement, halt construction of the Mexican border wall, require the pledge of Justice Department independence, and modernize the regulatory review process. The President ordered a review of the Trump administration’s environmental actions, halted construction of the Keystone XL pipeline, and suspended new oil, gas, and coal leasing and drilling permits on federal lands and waters. 

Energy Stocks Teeter, FAANG Stocks Increase, Small Caps Continue to Move Higher

Not surprisingly, given the ongoing concerns about the economic impact of the coronavirus, coupled with the administration’s actions directed toward fossil fuels, energy stocks declined last week. The XLE ETF slid 1.6 percent, but remains 11 percent higher on the year. Crude oil, on the other hand, was essentially flat on the week, despite a decline on Friday after domestic inventories unexpectedly rose for the first week in the past six. 

The big winners among equities last week were the FAANG stocks. Having mostly drifted sideways over the past month, the FAANGs broke sharply higher last week. Netflix led the way with a gain of 13.5 percent after it reported faster than expected subscriber growth in the fourth quarter. Alphabet, Apple and Facebook all gained better than 9 percent, while Amazon gained 6 percent as they approach earnings. Joining energy on the downside were the cyclical darlings of the most recent leg of the current rally, including financials, materials, and industrials. Small cap stocks kept up their winning ways with a 2.1 percent advance in the Russell 2000, now higher by 9.8 percent on the year.

Asia’s Economic Rebound Driving Strong Performance for the Region; Record Number of U.S. Companies Reporting Positive Earnings

European equities were slightly higher on the week and have delivered returns similar to the U.S. so far this year. The flash PMI for the Eurozone was weaker than expected, although Germany was relatively stable. And returns from the MSCI Latin America index so far this year are similar as well. The best returns are being generated in Asia where the economic rebound from the coronavirus has been sooner. The MSCI Asia-ex-Japan index was up 3.4 percent last week and is higher on the year by 9.3 percent. 

Last week’s economic data in the U.S. continued to show mostly the same pockets of strength and weakness that have characterized the recovery from the springtime slowdown. Housing starts were stronger than expected, as were existing home sales and the previous month’s estimates for both were revised higher. Existing home sales for all of 2020 were their strongest since 2006, and 22 percent higher than in 2019. The flash PMI for manufacturing was stronger than expected, but somewhat surprisingly so was the service sector. Initial jobless claims edged lower but remained stubbornly high.

This week’s economic calendar is full. The Fed meets and is expected to reinforce its accommodative stance. The Bloomberg consensus forecast for fourth quarter GDP on Thursday is 4.2 percent. And a number of December reports are scheduled, including durable goods, new home sales, personal income, and spending, PCE prices, and January consumer confidence and sentiment. And fourth quarter earnings season continues. So far, albeit with fewer than 15 percent of companies reporting, a record high percentage of companies are reporting positive earnings surprises according to Factset data from 2006.

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Sources: Factset, Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.

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An index is a statistical composite that is not managed. It is not possible to invest directly in an index.

XLE tracks a market-cap-weighted index of US energy companies in the S&P 500. Energy ETFs are a broad class of ETFs that includes funds focused on securities related to oil, natural gas and alternative energy.

Definitions of individual and sector indices mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.

A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is typically used as a proxy for mortgage rates, and other measures.

FAANG is an acronym referring to the stocks of the five most popular American technology companies: Facebook, Amazon, Apple, Netflix and Alphabet (formerly known as Google). 

Flash Manufacturing PMI is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers' Index (PMI) survey responses each month.

Personal consumption expenditures (PCEs) are imputed household expenditures defined for a period of time. Personal income, personal consumption expenditures, and the PCE Price Index reading are released monthly in the Bureau of Economic Analysis' (BEA) Personal Income and Outlays report. Personal consumption expenditures support the reporting of the PCE Price Index, which measures price changes in consumer goods and services exchanged in the U.S. economy.

Past performance is not a guarantee of future results.

Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

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