It's all about bonds

Eagle Wealth Management |
Categories
Weekly Market Commentary

 

Hello Eagle Wealth community,

For the last year, it has seemed that the stream of headline grabbing news has mainly been interrupted by even bigger, more significant breaking news.  Between the vaccination chatter and stock market volatility, it may have been easy to miss the ongoing uptrend in long-term interest rates.

The 10-year Treasury yield in recent weeks moved above 1.75% (the highest in 14 months), and the 30-year Treasury topped 2.5% for the first time since August 2019.1.

Long bond yields may increase for several reasons, some of which may be good—strong economic growth—and some concerning, a potential pickup in inflation.2

Meanwhile, at its most recent policy meeting, the Federal Reserve decided to leave interest rates unchanged.  The Fed also restated its commitment to no short-term interest rate hikes through 2023.3.

In the interest-rate tug of war, both sides appear to be holding their own.  The Fed is keeping short-term rates steady while long-term rates are trending higher due to market forces.

Fed Chair Powell said that he anticipates inflation rising this year.  But he believes the price increases will be temporary, with inflation staying within the Fed’s 2% target for the next several years.3

The Federal Open Market Committee projected that the economy would grow 6.5% this year, a sharp improvement over its previous estimate of a 4.2% gain. The forecast for the unemployment rate by year-end is 4.5%, down from its prior forecast of 6.2%.3.

You’re likely to hear phrases like “market dislocation” or other buzzwords as pundits explain what’s happening in the bond market.  But know that we’re keeping a close eye on the markets and are evaluating opportunities as events continue to unfold.  In the meantime, please reach out if you have any questions.4

 

Until next week,

Your Eagle Wealth Team

 

 

Stocks reached record highs last week, riding the tailwind of improving economic data and a strong start to the earnings season.

The Dow Jones Industrial Average rose 1.18%, while the Standard & Poor’s 500 gained 1.37%. The Nasdaq Composite index added 1.09%. The MSCI EAFE index, which tracks developed overseas stock markets, climbed 1.00%.1,2,3

Earnings, Economic Data

Stocks rallied early in the week on strong retail sales, a sharp drop in initial jobless claims, and a retreat in bond yields. Stocks then climbed to fresh record highs on Thursday, with the Dow Jones Industrial Average rising above 34,000 for the first time and the S&P 500 approaching 4,200.4

The market overcame some initial jitters arising from health authorities recommending a pause on a COVID-19 vaccine. Stocks also looked past an increase in the Consumer Price Index and a Federal Reserve report that indicated businesses were raising prices.

A surge in housing starts helped the rally, with stock prices moving higher to close out the week.

The Economic Pulse

Last week provided insight into the economic recovery, and the numbers vindicated the optimism that has driven markets higher.

An acceleration in inflation was expected, but came in at a rate (+2.6%) that didn’t appear to rattle the markets. It was, however, retail sales (an increase of 9.8%), new jobless claims (576,000--the lowest level since March 14, 2020), continuing unemployment claims (the lowest four-week moving average since March 28, 2020), and housing starts (+19.4%) that emboldened investors.5,6,7,8,9

Confirmation of this recovery came with the start of the new earnings season, which kicked off with strong earnings that, in some cases, exceeded Wall Street consensus expectations.

This Week: Key Economic Data

Thursday: Jobless Claims. Existing Home Sales. Index of Leading Economic Indicators.

Friday: New Home Sales. Purchasing Managers Index (PMI) Composite Flash.

Source: Econoday, April 16, 2021
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

This Week: Companies Reporting Earnings

Monday: International Business Machines (IBM), Coca-Cola (KO).

Tuesday: Netflix, Inc. (NFLX), Johnson & Johnson (JNJ), Lockheed Martin (LMT), United Airlines (UAL), Procter & Gamble (PG), Abbott Laboratories (ABT), CSX Corporation (CSX).

Wednesday: Verizon Communications (VZ), Lam Research (LRCX), Anthem, Inc. (ANTM), Chipotle Mexican Grill, Inc. (CMG), Crown Castle International (CCI).

Thursday: AT&T (T), Intel Corporation (INTC), Snap (SNAP), Blackstone Group (BX), American Airlines (AAL), Southwest Airlines (LUV), Union Pacific (UNP), D.R. Horton, inc. (DHI), Credit Suisse Group (CS), Dow, Inc. (DOW).

Friday: American Express (AXP), KimberlyClark Corporation (KMB).

Source: Zacks, April 16, 2021
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

1. CNBC, March 18, 2021

2. U.S. Department of the Treasury, February 2021

3. CNBC, March 17, 2021

4. Nasdaq.com, January 13, 2021