ND&S Weekly Commentary (3.22.21) – Happy Spring

March 22, 2021

Last week investors pulled back on conflicting economic data, an uptick in interest rates and concerns over relatively high financial asset valuations. For the week, the DJIA slid 0.45%, S&P 500 lost 0.74% and the tech-heavy Nasdaq declined 0.77%. International stocks were mixed with developed (MSCI EAFE) up 0.61% while emerging (MSCI EM), which flew the prior week, lost some steam down 0.80%. Gold closed at $1,741/oz., up 1.27% for the week. Oil (WTI) finished at $61.42/bbl., dropping 6.39%.

The second round of stimulus payments of $1,400 went out to roughly 90 million adults last week. All in, the relief checks for the year total over $800 billion. Investors are worried that such a jolt of liquidity will spur inflation and a huge federal debt overhang. There will undoubtedly be upward pressure on interest rates.

The Federal Reserve reiterated its dovish comments at last week’s FOMC meeting. The Fed reaffirmed their projection that there should be no short-term rate hikes before 2024 and agreed to be more tolerant of slightly higher inflation. On Friday, the Fed also decided not to extend the rule that allowed banks to relax capital levels afforded during the pandemic. The 10yr U.S. Treasury yield surged to 1.74% up from 1.64% the previous week and from 0.93% where it was at year-end.

Economic data released last week fell short of expectations. February retail sales declined sharply by 3% from January missing estimates for a modest 0.5% decline. Jobless claims unexpectedly rose 45,000 to 770,000 in the week of 3/13 and are higher than they were during the 2007-2009 recession. Industrial production declined 2.2% in February, manufacturing output slid 3.1% and overall capacity utilization declined to 73.8%. Housing starts are down 9.3% from the same time last year as a result of inflated building costs and recent adverse weather conditions. Economic reports will be plentiful this week: existing and new home sales, durable goods orders, GDP, personal consumption expenditures and income will be reported.
On the pandemic front, Covid-19 vaccine manufacturing companies are ramping up production as they become more efficient and are teaming up with other manufacturers. According to Eversource ISI, the increased output should fully vaccinate 76 million people in the U.S. in March, another 75 million in April and 89 million in May.

We expect market volatility as a result of higher consumer spending and challenged supply chains causing inflationary pressures. Though it’s always a good time for spring cleaning, please stay focused on your long-term goals and targets.

“From you have I been absent in the Spring
When proud-pied April, dressed in all his trim
Hath put a spirit of youth in everything”

– William Shakespeare