All Three Large Cap Indicies Hit New Record Highs

Primary drivers in the market last week included the signing of the American Recovery Act, exception­al progress on vaccine distribution, and a supportive calendar of economic reports. All three large cap U.S. indices (S&P, DJIA, NASDAQ) set new record highs while small caps surged over 7%. Gains were broad based with value/cyclicals continuing to lead the way, but we did see a strong bounce back in technology names as well. Developed and emerging international markets were up comparable to large cap U.S. markets. Both the USD and oil traded down slightly on the week. Rates moved higher in a similar fashion to recent weeks with the longer maturities rising 8 – 13 basis points and the short end remaining anchored by policy.

Market Anecdotes
•The $1.9t American Recovery Act became law last week, delivering a historic fiscal stimulus surge to many parts of the economy through stimulus checks, extended unemployment benefits, state & local government payments, Covid research/testing/vaccine distribution, and more.
•BCA Bank Credit Analyst noted con­sumers will have an estimated $2t in ex­cess savings at their disposal by April and should begin seeping into the economy as activity normalizes.
•The economic impact of fiscal stimulus (particularly this size/scope) should be to increase aggregate demand. The unknown is how much the curve will shift and how much real slack there is to soak up in the overall economy.
•Strategas made the important point that the actual re-opening and recovery in mobility/activity is the real economic stimulus, far outweighing the American Recovery Act.
•The outperformance of financials over technology since September has been pronounced but somewhat muted due to the surge in ‘non-profitable’ tech company shares.
•The NASDAQ entered correction territory on Monday but bounced off what were likely some short-term oversold conditions the remainder of the week.
•The selling of Treasuries continued last week and, like last week, the focus was not inflation fears. The slope of the 10 year and 30 year was again pretty static but the 2 year 5 year steepened again.
•Currently markets expect the Fed to begin hiking rates in November 2022, an­other in May 2023, and again in Novem­ber 2023 – notably more hawkish than the Fed’s current guidance.
•Arbor Data noted a significant part of the recent USD rally may be some short squeezes in addition to U.S. economic growth leading most non-U.S. markets.
•China’s annual National People’s Congress kicked off on Friday with the unveiling of economic targets and budgets for the year. Beijing noted GDP growth over 6%, 3% GDP, and unemployment similar to 2019 levels with a fiscal deficit target of 3.2% of GDP.
• The European Central Bank announced an increase to its Quantitative Easing scheme and left Pandemic Emergency Purchase Program (PEPP) unchanged at $2.21t until March 2022. European Union stocks rallied, and sovereign yields fell.

Economic Release Highlights
•February headline and core Consumer Price Index registered a benign 1.7% and 1.3% respectively.
•February NFIB Small Business Op­timism registered 95.8, slightly below consensus but a small improvement over January.
•The flash University of Michigan con­sumer sentiment report for March came in significantly higher than expected, rising to 83.0 (78.5 expected) and up nicely from 76.8 in February.
• January Job Openings and Labor Turnover Survey (JOLTS) report has job openings at the highest levels since Febru­ary 2020.

 

 

 

 

 

 

 

 

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