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Weekly Market Update for March 12, 2021

by Jim Ulland

The theme of economic recovery played strongly this week. The stimulus bill passed and, when combined with the December $900B pandemic aid, became the largest stimulus spending in economic history. The Fed insisted it would keep interest rates low even as rates crept up during the week. Economic growth forecasts were raised. The Covid infection and death rates fell and vaccinations became increasingly available. More states lifted more lockdowns. Workers anticipated being called back to work and corporate earnings forecasts were raised. Moreover, reports on how much consumers had saved during the lockdowns were released suggesting pent-up demand for spending. The DOW and the SP 500 hit record highs.

Sitting on the sidelines in cash does not look like a very rewarding strategy. The NADSAQ is down about 5.5% from its February high and presents an entry point opportunity. Some of the decline is attributed to investors switching out of tech, which had about a 40+% rise last year, and into those sectors that were left behind in 2020 like banks, energy, and manufacturing. The slightly higher interest rates help bank profits. Faster economic growth will give a boost to energy stocks.

The big unresolved concern in the market is interest rates. They are back to pre-pandemic levels, which was expected with the forecast for robust economic growth. High growth could trigger unwanted inflation. Yet, prices have been relatively stable. However, pressure on prices will come soon if it is going to come at all. Most of the $1.9T stimulus bill is headed into consumers’ bank accounts starting this weekend. Congress is saying it wants to add a large infrastructure repair bill on top of the stimulus spending. The country has not done this much deficit spending before in such a short time. There are no historical examples on how this will play out. The Fed said that some short-term inflation may result, but they suggest interest rates will stay low for longer. Some economists argue that we are in a world economy which is very price competitive, making it hard for prices in the US to rise. Interest rates in Europe are negative, making it difficult for US rates to rise much more. But we are in a new economic experiment, which is why the market is nervous.

Weekly economic news was good. Unemployment filings were down. The US Treasury was able to sell a lot of bonds without forcing interest rates higher. Consumer confidence was up. The Producer Price Index was subdued except for gasoline. More solid economic news is expected next week.

In response to the uncertainty, the market was volatile but trending up. The Nasdaq continued to recapture losses of late February and early March having two days this week of 2% or better and only one particularly weak day. For the week, the NASDAQ was up +3.09%. The SP 500 was up +2.64%. Monday the SP 500 was -0.54%, Tuesday +1.42%, Wednesday +0.60%, Thursday +1.04%, and Friday +0.10%.

The market is likely to stay volatile in the short run, especially if interest rates do not flatten next week.  The power of economic growth is so strong it may well push stocks higher in 2021. Time to put idle cash to work.

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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