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Markets, Economy

Weekly Kickstart (03/22/2021-03/26/2021)

3/22/21 8:00 AM

iStock-626627280.jpgStocks were under pressure last week, as the S&P 500 fell by 0.77 percent to 3,913.10. That still left the benchmark index up 4.18 percent 2021-to-date, and just 1.54 percent below the all-time closing high. The spotlight was on the Federal Open Market Committee during the past few trading sessions and its latest monetary policy announcement. The key issue that investors were focused on was the quarterly update to the committee’s economic projections since this can shed light on potential policy changes down the road. As anticipated Fed officials significantly upgraded their economic outlook, including expectations for faster GDP growth and a swifter decline in joblessness compared to the December update. At the same time, though, the committee said that it sees an acceleration in the rise in inflation going forward but it also made no material change to its rate hike timetable. Altogether the latest FOMC statement can therefore be described as dovish or even passive easing in that it reaffirms officials’ willingness to let the economy run “hot” for a while and keep the highly accommodative policies in place. Justification for this includes the committee’s belief that any near-term spikes in inflation should prove transitory.

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As a result investors are likely to continue closely monitoring every incoming data point on price pressures in America. In fact, the latest Bank of America fund manager survey found that “higher than expected inflation” is now viewed as the biggest tail risk for the markets that professional money managers are worried about at the moment. That is the first time something related to the pandemic has not been the top-cited tail risk since the coronavirus crisis began, and surveyed investors are now even worried more about another “bond market tantrum” than a hitch in the COVID-19 vaccine rollout. More generally there is a clear sense of optimism among surveyed fund managers. For example, a record 91 percent of respondents expect the economy to improve, and a majority for the first time this crisis now believe the recovery will V-shaped instead of U- or W-shaped. This has also translated into a record level of optimism about corporate profits, which can naturally be viewed as a contrarian indicator, and majority of surveyed managers did admit that they believe U.S. equities are either in a bubble or a late-stage bull market. On the other hand one could argue that such profit sentiment is justified considering that it is difficult to imagine a situation where earnings do not improve at least in comparison to 2020 when most of the economy was shutdown due to the virus. Clearly the data is going to remain noisy going forward due to pandemic-related distortions, and any regular investors uncomfortable navigating such an environment may therefore want to continue to use rallies as opportunities to review their positioning and make sure it is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. Additional assistance is available by working with a professional financial advisor and as always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage applications rose, and regional manufacturing activity picked up. As for the negatives, homebuilder confidence deteriorated, housing starts fell, building authorizations declined, industrial production tumbled, capacity utilization contracted, retail sales disappointed forecasts, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data remains muted but there are still a few important reports on housing, manufacturing, consumers, and inflation scheduled to be released, along with a handful of speeches from Federal Reserve officials.

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What To Watch:

Monday

  • Existing Home Sales 10:00 AM ET
  • Thomas Barkin Speaks 10:30 AM ET
  • Mary Daly Speaks 1:00 PM ET

Tuesday

  • James Bullard Speaks 9:00 AM ET
  • New Home Sales 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 2-Yr Note Auction 1:00 PM ET
  • John Williams Speaks 2:45 PM ET
  • Lael Brainard Speaks 3:45 PM ET
  • James Bullard Speaks 4:20 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Durable Goods Orders 8:30 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 5-Yr Note Auction 1:00 PM ET
  • John Williams Speaks 1:35 PM ET
  • Mary Daly Speaks 3:00 PM ET
  • Charles Evans Speaks 7:00 PM ET

Thursday

  • John Williams Speaks 5:30 AM ET
  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • John Williams Speaks 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • Charles Evans Speaks 1:00 PM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET
  • Mary Daly Speaks 7:00 PM ET

Friday

  • International Trade in Goods (Advance) 8:30 AM ET
  • Personal Income and Outlays 8:30 AM ET
  • Retail Inventories (Advance) 8:30 AM ET
  • Wholesale Inventories (Advance) 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FRBG, BAML, FRBSL

Post author: Charles Couch

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