Look at the economy and there’s grounds for concern, particularly after Friday’s hiring report. But the picture in bonds, stocks and commodities is fast becoming one of near-unanimous optimism, as investors brace for the benefits of vaccines and stimulus. It was there on Friday, when less-than-stellar employment data landed in a market where the reflation trade is in full swing. Long-dated Treasuries — the ultimate haven asset — sold off this week, pushing the yield curve to its steepest level since 2015. Breakeven inflation rates climbed to an eight-year high, breathing life into financial and energy stocks. And crude oil hit the highest price in a year.
The S&P 500 closed at a record Friday after data showed the U.S. economy added just 49,000 in January, missing expectations of 105,000. The softer-than-expected figures were seen as increasing the urgency behind President Joe Biden’s $1.9 billion coronavirus relief package, which took a major step forward with a vote in the Senate along party lines.
Beneath the surface, cyclical stocks — those with earnings viewed as being more tied to economic swings — revived their leadership role over the week. Energy shares halted a two-week slide, jumping 8.3% for the best performance in the S&P 500. The KBW Bank Index had its best week since November while the Russell 2000 Index of small-caps rallied the most since June.