In many ways, 2021 has continued the wild trip we have all been on since early 2020 and the onset of Covid. Good news and bad news, running simultaneously.
Here are some headlines from just the last week of February 2021:
- Chairman Powell told Congress, “The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.”
- “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” – Warren Buffett
- FDA grants emergency use authorization for Johnson & Johnson COVID-19 vaccine
- All our recent progress with Covid-19 could be wiped out by variants, CDC director says. ‘Please stay strong’
Equities experienced a choppy month in February, as rising Treasury yields raised concerns about inflation and stock valuations. Economic indicators, other the other hand, have been rebounding strongly. However, employment is still lagging considerably, with some 10 million employees and small business owners still out of work.
Financial Markets:
Tail Meets Dog
Ultimately, stock valuations and interest rates are determined by economic performance. That markets are discounting near-certain continued growth is evidenced by sizable gains in most financial markets. Should questions emerge about the pace of economic improvement, such as we are seeing in the jobs data, the bull case could be challenged. There is little room for disappointment given the run-up in stock prices, tightening of credit spreads, and steepening of the yield curve. Six or nine months ago, there was plenty of room for improving expectations, but now those expectations need to be met. It seems the “dog has caught its tail” as markets have run ahead of the economy in anticipation of full recovery.
Stocks, as represented by the S&P 500, hit the ceiling around mid-February and then spent 2 weeks declining to just above a critical support level. My outlook is that a correction of perhaps 10% was taking shape. Of course, as I write this note on Monday March 1, 2021, stocks are staging an impressive rebound (+2% across the board) – perhaps the dog has not caught its tail just yet. One thing we have observed, and made adjustment to, is that first two months of 2021 have been marked by a cyclical rotation into energy, financial, and other industries that are poised to do well from a return to economic growth and rising interest rates.
Time will tell if this strange trip continues or we finally start to return to some form of normalcy but we remain focused on your long-term goals.
We hope you find this outlook informative. Please feel free to share it.
Best regards,
Jim
March Calendar of Events (comments and additions for future months are always welcome)
March is Women’s History Month. Please says thanks to all the important women in your life.
March 8th International Women’s Day
March 14th Daylight Savings begins – Spring forward
March 17th St Patrick’s Day
March 20th Spring begins in US
March 27th Passover begins
March 28th Palm Sunday
Sources: CNN Business, Washington Cross Advisors
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