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Week in Review: March 19, 2021

Recap & Commentary

Markets generally ended the week lower as investors continued to keep a wary eye on interest rates, which gained another 0.11% as measured by the 10-Year Treasury yield. With the continued upward movement in rates, the “2-10 spread”, the difference between the 2- and 10-Year Treasury yields, now stands at 1.57%, the highest level since July 2015. A larger spread is generally interpreted to be positive for future economic growth.

In advance of its March meeting, some investors thought that the Fed might shift its stance on monetary policy, if only slightly, to acknowledge the recent rise in rates. Instead, the Fed chose to reiterate its commitment to current monetary policy. That stood in contrast to the ECB and Reserve Bank of Australia, both of which increased bond purchases in recent weeks in an effort to temper rising rates.

Updated economic projections provided by the Fed showed that it now expects GDP growth to accelerate to 6.5% in 2021, up from its 4.2% projection in December. The Fed also increased its estimate for core PCE inflation in 2021 from 1.8% to 2.2%. And while a couple of members now expect the Fed to raise rates before the end of 2023, not enough increased their forecast to change the overall expectation that the Fed is unlikely to raise rates before then.

In another sign of the Fed’s confidence in the recovery, it announced the end to looser capital requirements for large banks. The measure, taken last year, is now seen as unnecessary following the stabilization of the Treasury market.

Economic Bullet Points

After jumping 7.6% in January, thanks in part to renewed stimulus, retail sales fell 3.0% in February, impacted by severe winter weather across much of the country. However, compared to a year ago retail sales rose 6.3%. Core retail sales, excluding autos and gasoline, exhibited a similar trend, declining 2.7%. With millions of consumers set to receive $1,400 checks from the recently passed $1.9T stimulus bill, retail sales should rebound in the coming months.

Housing starts fell for a second consecutive month, declining just over 10% in February. Similar to retail sales, severe winter weather was the primary culprit. Building permits, often seen as a leading indicator of future housing activity also fell, down nearly 11% following an 11% increase in January.

Industrial production also fell victim to February’s weather, declining 2.2%. Within industrial production, manufacturing dropped 3.1%. A global shortage of semiconductors also weighed on the sector. Excluding the weather effects, manufacturing is estimated to have declined 0.5%.

Weekly jobless claims rose 45K to 770K, the highest level in four weeks. Economist had been expecting 700K claims. Continuing claims posted a 9th consecutive weekly decline and now stand at 4.12M. Across all unemployment programs ~18M individuals are currently receiving benefits, down from nearly 30 million seven months ago.

Of Note

After getting off to slow starts with their vaccine programs, the UK and US have now administered 40.5 and 34.1 doses per 100 people, respectively. Meanwhile, the EU has only managed to administer 12 per 100 people.

Market Indices Week of 03/19

S&P 500-0.8%
Small Caps-2.8%
Intl. Developed0.5%
Intl. Emerging-0.8%
Commodities-1.7%
U.S. Bond Market-0.3%
10-Year Treas. Yield1.73%
US Dollar0.1%
WTI Oil ($/bl)$61
Gold ($/oz)$1,742

The Week Ahead

  • Existing Home Sales
  • New Home Sales
  • Durable Good Orders
  • PCE Inflation
  • Consumer Spending
  • Personal Income
  • Consumer Sentiment
  • Weekly Jobless Claims

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