January 2021 Market Review

All eyes remained on the pandemic and policy as the new year began. An anticipated post-holiday spike in Covid infections materialized and then began to abate by midmonth. Democratic victories in Georgia increased the likelihood of additional stimulus. With positive economic releases early in the month, "risk-on" remained the preferred trade. The yield on the 10-year Treasury note spiked to 1.15% on January 11.

As the month continued, employment data showed continued weakness, along with less-than-impressive retail sales and spending. The vaccine rollouts did not meet expectations, with just over 6% of the population having received at least one dose. Having hit new highs, equity market volatility ensued, and credit spreads widened modestly. The 10-year yield see-sawed down to 1.08% at month end, while 2-year yields remained anchored. The 2-30s yield curve steepened by 21 basis points (bps). 

Core inflation slightly exceeded expectations at 1.5% for the year. With a high savings rate, consumer balance sheets remain in good shape and spending is poised to rise once the pandemic is brought under control. However, the labor market has considerable slack, and that should help mitigate inflation fears. 

A return to multilateralism is in the foreign policy cards, but how that plays out regarding trade actions is uncertain at best. Military maneuvers in the Taiwan Straits indicate no easing of Sino-American tensions.