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Weekly Commentary

ND&S Weekly Commentary 2.22.21 – Bond Prices Thaw

Equities finished mostly lower during the shortened President’s Day week as investors focused on the post pandemic recovery and the pending stimulus plan. Though there were mixed economic signals reported, the Federal Reserve advocated that the proposed $1.9 trillion stimulus package be passed which they feel is desperately needed and would not overheat the economy.

For the week, the Dow Jones Industrials rose (DJIA) 0.16%, the broader-based S&P 500 dipped 0.68% and the tech-heavy Nasdaq slid 1.54%. International equities were modestly higher with developed (MSCI EAFE) and emerging markets (MSCI EM) up 0.28% and 0.09%, respectively. Smaller companies also weakened with the Russell 2000 declining 0.98%. However, since the small cap rally began last September, the Russell 2000 is up 55% while the S&P 500 returned 21%. Inflation expectations have been affecting the bond market, steepening the yield curve and eroding bond prices. The yield on the 10 year U.S. Treasury jumped to 1.34% from 1.20% the previous week. The iShares 20+ Treasury Bond ETF (TLT) is down 9% year to date. As a result of the big freeze in Texas, U.S. crude oil rose above $60 per barrel for the first time in over a year before closing at $59.

Thus far, 84% of the S&P 500 companies have reported 4th Quarter results with 71% beating revenue estimates and 79% beating on earnings. Analysts are now expecting a 21% increase in S&P 500 company earnings in 2021.

On the economic front, the weekly jobs report disappointed with 861,000 Americans having filed for unemployment, trending higher than the previous weeks. Existing home sales continued to increase in January rising 0.6% from December to a seasonally adjusted rate of 6.69 million annualized units according to the National Association of Realtors. January retail sales surged 5.8% YOY way above expectations thanks to additional fiscal stimulus and e-commerce. The purchasing manager’s index for services and manufacturing from IHS Markit rose to 58.8 in February from 58.7 last month, the strongest reading in nearly six years. As for the pandemic, inoculations are proceeding rapidly and a study shows that Pfizer’s vaccine is 85% effective with just one dose and it can be kept at warmer temperatures than originally thought.

Taking into account our improving economy, huge stimulus and a more than accommodating Fed, we remain cautiously optimistic. The markets have reached all-time highs, the speculative areas of the market are becoming more volatile and margin debt has soared over 40% since last year. We strongly recommend a well-diversified and balanced portfolio made up of high quality holdings.

This week’s economic reports include the January leading indicator index, consumer confidence, durable goods orders and personal income and spending.

“Worry is the interest paid by those who borrow trouble.”George Washington

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