Markets are finding it difficult to figure out where we're headed from here and whether or not the Federal Reserve can navigate rising interest rates and rising inflation. The 10-year Treasury Bond closed the week higher by 17 basis points to finish 1.57%. While Fed Chairman Powell and Treasury Secretary Yellen have both publicly stated that the rise in yields is not a concern, but rather a sign of economic recovery, investors are not so sure.
The economic picture would certainly show that that Powell and Yellen are right in one respect, the recovery is progressing. The Jobs Report last week blew out analysts expectations as 379,000 new jobs were added in February and January's number was revised higher by more than 100,000 jobs. Markets seem to be betting that the Fed will have to change course on their accommodative stance sooner than expected. This week, the big release will be CPI (Consumer Price Index), also known as the key measure of Inflation. If the number comes in higher than expected, it could add to market volatility.
The shift in yields has caused the market to refocus on asset classes that have been under-valued. For the better part of the last 20 months, "growth" stocks have far out-performed "value" stocks. That appears to have changed as "value" stocks are now up more than 7% for the year and "growth" stocks are now negative year-to-date. Meanwhile, the consumer appears to be in solid shape (given household debt is very manageable at this point) to push GDP higher and the re-opening of several states this week - AL, MS, AZ, CT - to name a few, will unleash consumers to resume normal spending habits. At the same time, the virus numbers continue to decline while vaccine numbers continue to climb (more than 2 mil daily dosses being administered).
Click below to access our full Market Recap for this week.