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  • Scott Poore, AIF, AWMA, APMA

A Tale of Two Markets

The market is a bit schizophrenic lately as investors decide which of two tales to focus on when trading. Do investors want to focus on stimulus, increased vaccinations and re-opening economies or on potential taxes, increased regulation in certain sectors, extremely high spending, and inflation? Yesterday's economic news was positive, and yet, markets didn't really react with glee. Here's a glimpse of what we're seeing:

  • Improving Economy. The week started out a little rough with some disappointing news, but Thursday's releases were positive. The Chicago Fed National Activity Index went negative for the first time since June of 2020. Contrast that with the Richmond Manufacturing Index, which increased month-over-month, and the Markit Manufacturing & Services Indices, which increased month-over-month, and we're kind of at a stalemate. There are clearly soft points in certain areas of the economy, but not in others. Yesterday, 4th quarter GDP was revised higher to 4.3% from 4.1% earlier this month. The Atlanta Fed's GDPNow estimate for the 1st quarter is 5.4%, a solid number on top of the 4th quarter's 4.3%. Weekly Jobless Claims went below 700,000 for the first time since the pandemic began! Last week's claims were revised higher from 770k to 781k, making this week's decline to 684k claims quite substantial. The Housing data clearly shows a slowdown in that sector as interest rates have risen, pushing mortgage rates higher, as well. Today we will learn all about the consumer as the trifecta releases of Personal Income, Consumer Spending, and Consumer Sentiment (UoM) are released. Income and Spending are expected to have dropped in February, with March's Sentiment expected to have remained the same.

  • Fed Policy. The Fed stated last week that their growth projections for the U.S. economy are 6.5% by year end and unemployment below 4% by the end of 2022. What seems to be happening is that the market is doubting the third element of the Fed's projections - inflation. The Fed expects 2.4% inflation this year while the economy re-opens and GDP rises by 6.5%. The bond market is suggesting this may not be possible. Perhaps the bond market is right, but the old moniker - "Don't Fight the Fed - is probably a better bet than going against them. The other elements that we regularly monitor - National Financial Conditions Index and Financial Stress Index - suggest the Fed is correct and investors could be making a bad bet.

  • The Virus and Re-opening. The latest concern on COVID is variants - different strains of COVID that have resulted from the mass number of infections worldwide. However, a recent study suggests that those who have already been infected have 80% protection from reinfection (similar to vaccination success rates). In fact, only 0.65% of those previously infected during the 1st wave of COVID tested positive a 2nd time in the 2nd wave. The path to "herd immunity" is accelerating, between those who have already been infected and the 2.5 million daily doses of vaccines being administered. Meanwhile, progress is being made on re-opening as California theme parks will re-open to the public on April 1st. Hotels are now open in every U.S. state and quarantines are ending in the various states. Diners in restaurants is at the highest point since the pandemic began. TSA traffic and Hotel occupancy are at near peaks since the beginning of the pandemic. The prospects for future economic growth actually look to be on the bright side.


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