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It seems the narrative had shifted to the expectation that the entire month of December would yield a strong rally. This year the S&P 500 was roughly flat in first 20 days of the month, which was below the median of the last 20 years. The Bloomberg Barclays Aggregate Bond Index was down on the week as bond yields moved higher at the back end of the curve.
Personal Income and spending came in-line with expectations for the month of November. The early read on retail sales in December was released by the Mastercard SpendingPulse. This report indicated that holiday sales were up 8.5% versus the prior year. The narrative quickly viewed took this headline as a way to highlight the strength of the consumer. The window for this report is Nov. 1 to Dec. 24. The best proxy for this report is the U.S. Census Bureau’s Retail Sales Less Auto and Gas which has already been reported to be up 16.5% in November versus the prior year. Doing the basic math would indicate a sharp decline in retail sales for the month of December. While this indicator is
only proxy, it would be quite a surprise to the market if retail sales were to exhibit this kind of contraction.
China has initiated some easing to help offset economic stress, however, at first blush it appears insufficient as their 10-year yield hit its lowest level of the year this week. Over the last five years, China government bond yields tend to lead the United States, especially when they break to new lows as they just did. Despite this, U.S. 10-year yields are
roughly 60 basis points above of their 2021 low. The Bloomberg Treasury Index is set to record a negative return of about 2% for 2021. The index hasn’t recorded consecutive losing years since the 1950s. While this streak will certainly end at some point, we still have a strong historical precedent to suggest sharp losses on Treasuries remains
a lower probability event. The Bloomberg Treasury Index has averaged an annual return of 6.9% over the last 40 years while the broader Bloomberg Aggregate Bond Index has compounded at 7.4%.
Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet, Refinitiv.
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