by William Henderson, Vice President / Head of Investments
For the week that ended February 19, 2021, the Dow Jones Industrial Average returned a nominal +0.2%, barely positive while the two broader indices were both negative for the week with the S&P 500 Index falling –0.3% and the NASDAQ –1.1%. With last week’s mixed results, returns nonetheless remained positive on a year-to-date basis. Year-to-date, the Dow Jones Industrial Average has returned +3.2%, the S&P 500 Index +4.2% and the NASDAQ +7.8%. For the week, the 10-year U.S. Treasury note moved significantly higher by 13 basis points to a post-pandemic 1.29%. 

No one can question, that the economy still is not “normal,” but the markets sure are acting that way. Year-to-date returns, noted above, are decent and certainly point to a positive year overall. Further, last week’s economic releases around industrial production, housing and retails sales were strong. Everything seems to be COVID-19 related. According to Johns Hopkins University, fresh COVID-19 cases for the week ending Feb. 14 were the lowest since October, at 2.7 million, a modest 2.5% increase in total infections from the previous week, the weakest gain since the start of the pandemic and less than half the rate seen a month earlier. Lastly, corporate profits (EPS) announcements continue to beat expectations, credit spreads are narrowing and capital expenditures by corporations are increasing. Soon, we are going to see rebounds in the sectors that were most battered by the virus-related economic shutdown.

Even as Treasury Secretary Yellen calms warnings about inflation, investors are fleeing bonds amid fears that inflation with heat up and return. The rise in the 10-year Treasury to 1.29% last week certainly shows investors are worried about bonds. Yields move opposite direction to prices and rising bond yields can hurt investors. The bigger story here is not bonds but instead the stock market which has multiple tailwinds supporting further positive movements. President Biden’s stimulus package, whether it is $1.4 or $1.9 trillion is going to be huge. Treasury Secretary Yellen and Fed Chair Powell are going to be patient around inflation moves and fully supportive of the administration’s efforts with fiscal stimulus. As mentioned, COVID-19 cases are down, the vaccine is being widely distributed and national herd immunity is expected by mid-summer or sooner.   

Things may not be “normal,” but normal is closer than we think. A common misstep all investors should avoid is trying to time the market, and 2020 showed just how detrimental timing the market could be for investors even in the short term. Stay focused on the long-term objective and realize “normal” is coming back.  

by William Henderson, Vice President / Head of Investments
The markets continued to move into record high territory last week looking past COVID-19 and forward to additional stimulus, greater distribution of vaccines and a long-awaited recovery in employment. As expected, Fed Chair Jerome Powell also stuck with his dovish tone last week reminding us that the Fed has no intention of lifting from the economic accelerator for a long time. For the week ended February12, 2021, the Dow Jones Industrial Average returned +1.0%, the S&P 500 Index +1.2% and the NASDAQ +1.7%. Last week’s returns piled onto an already positive year for the markets. Year-to-date, the Dow Jones Industrial Average has returned +3.0%, the S&P 500 Index +4.9% and the NASDAQ at +9.4%. For the week, the 10-year U.S. Treasury note moved only one basis point higher to 1.16%.   

We have talked about M2, the Money Stock of savings deposits, bank deposits and retail money market fund balances, several times in The Weekly Commentary. The chart above from the Federal Reserve Bank of St. Louis shows M2 sitting at record levels and indicates graphically how much cash is sitting on the sidelines waiting to be released into a post-COVID-19 economy. An additional stimulus package of $1.5 to $1.9 trillion will only add to those reserves. As we reach herd immunity and the magic 75% of the population vaccinated, that cash will be put to work. Sectors like leisure, travel, energy, and retail will see a surge in activity. It will be gradual and the journey back to normal will be bumpy and winding, but it is in sight and the markets are seeing the end game not the path.

I feel like this column often returns to the same thing: a dovish Fed, a willing Treasury Secretary, an able Democratic majority party across the government, and vaccine distribution when coupled with the sidelined cash only points to a very healthy economy in the second half of 2021. Several firms are predicting double-digit GDP prints (10%-11%) in 3Q & 4Q 2021.    Investors should look past the clamor, and instead focus on the end game described above. It is interesting to note that on years when the S&P 500 Index returns greater than 10%, there are between three and five market corrections that year of 5% or more.  Why does that matter? It is a reminder to investors that corrections are normal in healthy markets and part of long-term investing.