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Weekly Market Update for February 26, 2021

by Jim Ulland

What just happened? The Nasdaq was down more than 2% twice last week and up 1% or more twice. The yield on the 10 Yr Treasury spiked upward to pre-pandemic levels and hurt fixed income securities. Growth stocks fell sharply and value stocks like banks and energy did better.

The market does not like the latest stimulus package. Less than 10% of the spending is for Covid treatment and faster vaccinations. The money for schools will not be spent for a year, so it will be of little help in getting kids back in classrooms now. 75% of the $1.9T goes to individuals and is viewed as untargeted and potentially inflationary. This potentially inflationary spending will be on top of spending of savings accumulated from cancelled vacations and limited out-of-home dining or entertainment. Exacerbating this spending level is the proposed infrastructure bill that would spend almost twice as much.

Covid cases and deaths have dropped dramatically. Progress on getting more people vaccinated continues at an increasing pace. The supply of vaccines grows with J and J’s vaccine soon to be approved. As this happens, the lockdowns will be lifted. Many of the ten million people still unemployed will return to work. Corporate profitability will improve. In this type of robust recovery, added stimulus has the potential to cause more problems than it solves. Thus, the market took its concern out on stock and bond prices. On Friday the Senate Parliamentarian ruled that a minimum wage change was not germane and must be removed from the stimulus bill. Only then did the Nasdaq start to improve, although this news did not help the Dow or the SP 500 turn positive. A $15 minimum wage is controversial in rural America where wages tend to be well below urban areas. The Congressional Budget Office had forecast a job loss of 1.4 million. This provision will be brought forth again in separate legislation.

Signs of the recovery were evident on Thursday’s unemployment filings, which dropped sharply from the prior week. Unemployment filings tend to be influenced by weather and seasonal factors, such as the storm in Texas. Thus, we will wait several more weeks before calling this a trend. But consumer confidence did increase, durable goods orders were better than expected, and home prices improved.

This week’s market performance was volatile and sharply down on two days. The Nasdaq was down -4.92% for the week. The SP 500 was -2.45%. Monday the SP 500 was -0.77%, Tuesday +0.13%, Wednesday +1.14%, Thursday -2.45%, and Friday -0.47%.

Looking forward, we hope to see a calmer market. The volatility of this week was more than the news warranted exposing some areas of market illiquidity. Because interest rates have reached pre-pandemic levels, they should plateau soon. Covid, vaccination, and economic news is likely to trend positive. But the fears surrounding the stimulus bill will be with us for longer.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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