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Week in Review: March 12, 2021

Recap & Commentary

Despite ongoing nervousness about higher rates, markets ended the week higher. For the more cyclically oriented Dow Jones Industrial Average, it was a record week, as the venerated index notched five consecutive record highs. In addition, both the S&P 500 and Russell 2000 (U.S. small cap companies) also ended the week at record highs. And after officially slipping into contraction territory on Monday (defined as a 10%+ pullback from a record high), the NASDAQ managed to rally 5.6% over the following four days.

The 10-Year Treasury yield rose 0.05% over the course of the week, to end at 1.62%, its highest level since last February. The breakeven rate on the 10-Year Treasury, defined as the difference between the nominal yield on the 10-Year Treasury and that of the 10-Year TIPS (Treasury Inflation-Protected Security), exceeded 2.3%, for the first time since early 2014.

On Thursday, President Biden signed the $1.9T stimulus bill into law. Among other measures, the bill will send direct payments of up to $1,400 to millions of Americans, some of which began to be received over the weekend

This week marked the one-year anniversary of when the world “shut down” in response to the coronavirus pandemic. Since then, over 119M global cases have been recorded, along with 2.64M deaths, including over 533K in the U.S. A year later, with multiple vaccines having been approved and over 100M doses having been administered in the U.S., the global economy is moving closer to a full “reopening”.  In the US, the pace of vaccinations has now reached 2.1M/day.

Economic Bullet Points

Consumer inflation (CPI) rose 0.4% in February, in line with estimates. The headline rate was boosted by a 6.4% gain in gasoline prices which accounted for over half the increase. Excluding food and energy prices, core CPI rose just 0.1%, less than the expected 0.2% increase. Compared to a year ago, headline inflation rose 1.7%, in line with expectations, and up 0.3% from January’s 1.4% reading. Core CPI rose 1.3% from a year ago, 0.1% lower than the consensus expectation, and January’s reading. While investors continue to fret about the possibility of higher rates/inflation, February’s data suggests that inflation is not on a “runaway” trajectory.

The early read on consumer sentiment for March surprised to the upside, aided by improved views regarding current and future conditions. At 83.0, sentiment is currently at its highest level since last March. The headline level was boosted by the accelerating pace of vaccinations as well as the passage of President Biden’s $1.9T stimulus bill.

Weekly jobless claims fell 42K to 712K, the lowest level since November. Claims are expected to decline further in the coming months, as economic activity increasingly returns to normal. However, the current level remains significantly higher than the 2019 weekly average of 218K, reflecting ongoing pressures currently faced by labor markets.

Of Note

The European Central Bank (ECB) announced that it will accelerate its pace of bond purchases in an effort to stem a recent rise in borrowing costs. In contrast, the US Fed has shown patience with respect to the recent rise in interest rates.

Market Indices Week of 03/12

S&P 5002.6%
Small Caps7.3%
Intl. Developed3.0%
Intl. Emerging0.7%
Commodities0.1%
U.S. Bond Market-0.4%
10-Year Treas. Yield1.62%
US Dollar-0.4%
WTI Oil ($/bl)$66
Gold ($/oz)$1,723

The Week Ahead

  • Retail Sales
  • Housing Starts
  • Industrial Production
  • NY Manufacturing
  • Philly Manufacturing
  • Weekly Jobless Claims

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