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Weekly Market Update for March 19, 2021

by Jim Ulland

The stimulus legislation is like eating too much at Thanksgiving with the resultant stomachache. The bad stomach persisted all week in the market. Long-term interest rates moved higher even as the Fed said it would keep short-term rates low into 2023. Aggravating the situation was the economic growth report for March from the Philadelphia Fed, which was the highest index reading in 50 years. Other economic news reinforced the economic recovery story. The Fed raised its economic growth forecast for 2021 from 4.2% to 6.5%. In the market’s view, the recovery seemed well underway before the $1400 stimulus checks were distributed.

Other favorable news showed why the Fed raised its growth rate forecast. Vaccination availability is working its way quickly to everyone. Estimates were released that say “herd immunity” will be achieved by early summer. States are easing restrictions on entertainment, food and beverage, and social gatherings. Retail spending was below expectations in February, but this was mostly weather related. The same is true of unemployment filings which were slightly above expectations. March reports will be stronger.

The volatile market caused some pain for investors. The Nasdaq is flat for the year, but down about 7% from its February high and presents an entry point opportunity. Energy stocks fell with reports of higher inventories and that electric cars will replace gasoline fueled ones in the next ten years did not help. Stocks of smaller companies continued to make up some of the performance they lacked in 2020.

The good economic news and the expected control of Covid-19 turned the focus to interest rates. Higher rates hurt fixed income securities, especially those with low yields and/or extended maturities. The lowest paying securities are government bonds which showed a sharp decline, especially if they had a maturity many years in the future. Interest rates are now slightly above their pre-pandemic level. As such, this is simply a return to where we were. Securities with high yields like preferred stock, are more insulated. Should rates continue higher, several sectors of the economy will have to adjust. Home building will slow with higher mortgage rates. The US Government will feel the pain as debt costs escalate and crowd out other expenditures. Companies that borrow a lot will have higher interest expenses. As a boutique firm, we can be nimble and reposition with these changes. Everyone is not so fortunate.

The market will be volatile until interest rates stabilize. For the week, the NASDAQ was down -0.79 %. The SP 500 was down -0.77 %. Monday the SP 500 was +0.65%, Tuesday -0.16%, Wednesday +0.29%, Thursday -1.48%, and Friday -0.06%.

This week the Administration announced its effort to increase taxes on corporations, personal income, and capital gains. Although the proposals are targeted at upper-middle and higher income earners, very frequently increases expand to encompass the middle class. One way to save a few dollars is to remember that your first quarter income tax estimate for 2021 is still due April 15 even though your taxes due for 2020 are delayed a month.

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.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464