by William Henderson, Vice President / Head of Investments
Investors shrugged off economic setbacks such as a weaker than expected jobs report and pushed stocks higher by the end of the week hitting new records across the board. Additionally, Janet Yellen, the newly installed Treasury Secretary, pushed for rapid fiscal stimulus while ignoring the potential for inflation. Such dovish commentary pushed the 10-year U.S. Treasury note to 1.15% by the end of last week.  For the week that ended February 5, 2021, the Dow Jones Industrial Average returned +3.9%, the S&P 500 Index +4.7% and the NASDAQ +6.0%. The strong returns from last week moved the averages well into positive territory for the year; with the Dow Jones Industrial Average returning +1.9%, S&P 500 Index +3.6% and the NASDAQ at +7.6%. As noted above, the 10-year U.S. Treasury note moved higher by eight basis points to 1.15%.   

With the modest rise in Treasury yields, the yield curve, the slope of which gives an idea of future interest rates and economic activity, is at its steepest since 2017. The steepening yield curve signals comfort by Treasury and Fed that the economy is healing and expectations of upcoming healthy inflation. While making the case for President Biden’s $1.9 trillion economic relief package, Treasury Secretary Yellen noted on CNN February 7 that “too rapid inflation was a risk that needed to be considered and that policy makers have the tools to deal with that should it materialize.” 

Other than the slightly weaker January payroll report of only +49,000 new jobs added, there were plenty of positive economic reports last week. The Institute for Supply Management’s service survey topped expectations and the new-order and hiring components pointed to stronger growth ahead and durable-goods orders topped expectation as well. The economy will get a healthy boost from more stimulus payments, if not from a bipartisan effort than from the Democrats own $1.9 trillion package. The final driving power behind last week’s rally in the markets was improving Covid-19 news. The weekly number of new cases continued to drop and new vaccines, including one from Johnson & Johnson, will be on the scene soon.   

With some much noise from the media, investors oftentimes lose sight of the long-term objective which is saving for retirement or another similar financial goal. In contrast, clear financial goals, a disciplined investment process and a long-term approach is how investors can achieve their objectives.