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Week in Review: March 5, 2021

Recap & Commentary

Continued focus on rising rates led to another volatile week, in which the S&P 500 rose or fell by more than 1% on four out of the five days. However, for the entire week, broader markets were relatively unchanged. As rates rose during the week, from 1.40% to 1.57%, investor sentiment veered between optimism and pessimism. Interestingly, Friday’s better-than-expected employment report was interpreted by investors as “good news is good”, as opposed to “good news is bad” which markets are prone to doing at times. Instead of viewing the report as another potential harbinger of higher rates/inflation, investors viewed the report as positive with regards to the ongoing economic recovery. In response to the recent rise in rates, Treasury Secretary, Janet Yellen stated that she sees them as a signal of stronger recovery, not increased inflation concerns.

On Saturday, the Senate passed President Biden’s $1.9T fiscal stimulus bill. Among other measures, it will provide $1,400 checks to millions of individuals, $300 of enhanced weekly unemployment benefits until September, $350B in aid to state and local governments, and $170B for K-12 schools and higher education. Due to differences with the version passed by the House, the Senate version must now go back to the House for approval before it can be sent to President Biden to be signed into law.

Economic Bullet Points

February’s employment report provided hope that the labor market might be on the upswing again following several months of tepid gains. Nonfarm payrolls added 379k, just over double the consensus estimate. Leisure and hospitality was the big winner, gaining 355k jobs, following over half a million job losses in December and January. However, the sector is still down 3.5M jobs (20%) from pre-pandemic levels. The headline unemployment rate ticked down 0.1% to 6.2%, while the labor force participation rate remained unchanged at 61.4%, well below its pre-pandemic level of 63.4%. One concerning trend is the number of individuals classified as long-term unemployed, which now stands at 41.5% of the total unemployment figure. Studies have shown that extended periods of unemployment can impact an individual’s ability to find new work, as well as long-term earnings, family relations, and mental health.

Manufacturing activity as measured by industry group ISM rose to its highest level since February 2018, thanks to gains in new orders, production, and employment. The headline improvement came despite a global shortage of semiconductors which has hampered auto production of late.

Similar to manufacturing, the service sector continued to grow in February, albeit at a slower rate than in January. Unlike the manufacturing sector, services saw slower growth in production, new orders, and employment.

Weekly jobless claims rose slightly to 745k, a sober reminder that despite February’s relatively positive employment report, labor markets continue to face significant pressure.

Of Note

The non-partisan Congressional Budget Office released a report stating that federal debt is projected to double to 202% of GDP by 2051. The report assumed US GDP will grow at 1.8% per year over the 30-year period.

Market Indices Week of 03/05

S&P 5000.8%
Small Caps-0.4%
Intl. Developed-0.6%
Intl. Emerging0.0%
Commodities0.7%
U.S. Bond Market-0.8%
10-Year Treas. Yield1.57%
US Dollar1.2%
WTI Oil ($/bl)$66
Gold ($/oz)$1,697

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Consumer Sentiment
  • Small Business Optimism
  • Weekly Jobless Claims

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