Rising Rates pushed equities in the red last week, overshadowing positive momentum in the weekly economic data.
Our 10-year US Treasury yield rose to a high of 1.6% mid-week before settling down to a yield of 1.46 on Friday. So far in 2021, the 10 Year Yield has increased from .91% to 1.46%. That’s a fairly significant increase in just 2 months.
The economic data reported continues to point toward recovery with Consumer Confidence & Leading Economic Indicators rising, housing data all better than expected, except weekly mortgage applications because of the rise in rates. Weekly initial jobless claims fell decently and the all-important continuing claims dropped to the lowest level prior to March 2020. So, the recovery remains intact, however for the week, the Dow dropped (1.70%), the S&P 500 (2.41%), the Nasdaq (4.90%) and the Russell 2000 Small-Cap Index (2.87%).
Over the pond, International indexes were down between (2.79% and 6.33%).
Bonds as measured by the Barclay’s Aggregate Bond Index fell (.36%) for the week and is down (2.15%) for the year.
Stimulus Bill to the Senate
The House of Representatives approved $1.9 Trillion of additional stimulus. Now the Senate will bat it around for a little while, knowing full well the bill will pass, with very little alteration. Very soon, the economy will be infused with the $900 Billion stimulus from the Trump administration and $1.9 Trillion from the Biden Administration for a total of $2.8 Trillion! It’s no secret that folks who are suffering, need the additional unemployment funds, as well as many small businesses. The rest or majority of the dough… no comment. I felt the same with Trump’s $900 Billion stimulus, for the record.
It’s already known, following the new $1.9 Trillion – an Infrastructure stimulus!!
One thing is for sure, a ton of money will enter the economy in 2021.
Inflation – Is It Real?
For me it was entertaining over the weekend reading “expert” opinions on inflation.
Many experts believe rising rates are over-done and this massive amount of stimulus will not push inflation too high, and the rise in rates will be temporary.
Other experts believe rising market rates are justified, as all of this printed money will eventually increase the costs of goods and services to businesses and consumers. They also believe this will pressure working wages to increase, lowering corporate profitability.
What about our Federal Reserve? Chairman Powell has said repeatedly that inflation is not an issue, and he will let inflation run hotter for longer if and when it appears. I do NOT trust Powell will sit on his hands if market rates actually do turn a little hot. Just think back to the 4th quarter of 2018. The Fed Chairman made the statement that rates need to go much higher as we are nowhere close to neutral. Interesting, the S&P fell over 13%, then the Fed immediately changed course.
I’m sorry, actions always speak louder than rhetoric!!
What is going to happen? As always, time will tell!