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Weekly Market Update for March 26, 2021

by JM Hanley

Prior to this week, markets had spent much of the past month digesting four major new developments. Congress passed a stimulus bill that put plenty of cash in consumers’ pockets. The Administration also suggested its next priority will be an even larger spending package aimed at upgrading the nation’s infrastructure. In the US, the vaccine drive began to accelerate. That raised the possibility that activities currently limited – like entertainment and indoor dining – could return to normal more quickly than expected. After a year at home, consumer bank balances are healthy, and many are ready to spend. Finally, anticipating an economy flush with cash, the Federal Reserve said it was relaxed about the risk of inflation, and would remain patient about raising interest rates.

The country has not seen synchronized, expansionary fiscal and monetary policy of this magnitude in some time. Investors fretted that (despite what they might say) inflation would return and the Fed would have to raise rates. Bond yields climbed as a result. So did the stocks of banks, which benefit from higher interest rates. Airlines, industrial firms, and oil – all of which stand to benefit from reopening – outperformed. Major pandemic winners, including big technology firms, did worse.

This week, some of those trends normalized. Treasury yields came down slightly, as Chairman Powell and others insisted the risk of inflation was remote in testimony before Congress. The move in yields helped fixed income, including preferreds. The SP 500 finished finished the week up about a percent and a half, but the narrative for equities was less clearly defined. Utilities and real estate did well, aided in part by the stabilization in bond yields. Materials and industrials – beneficiaries of reopening as well as the President’s infrastructure push – also outperformed.

Energy also performed better than market as a whole. The price of oil fell early in the week, over concerns that Europe’s slow vaccination drive and renewed lockdowns could keep demand low. But then the sector got a boost from a freak accident. A quarter-mile long Japanese container ship was blown aground in the Suez Canal on Tuesday, which has blocked traffic through the waterway. The earliest the ship can be re-floated is by the middle of next week, with some estimates suggesting it could last much longer. The canal carries 12% of global trade, including plenty of oil tankers. Alternative shipping routes around the Horn of Africa are substantially longer and more expensive. Oil ended the week down less than a percent.

Economic data readouts from last month were poor, due in part to the extreme cold. Sales of new and existing homes were worse than expected. So were some metrics of consumer spending. On the other hand, initial jobless claims for this week were the lowest since the pandemic began, and consumer confidence appears to be rising.

Next Wednesday will bring the end of the first quarter, and hopefully the last one in which the economy bears the full brunt of the pandemic. Firms will begin reporting earnings by the middle of next month. In the meantime, next Friday’s jobs report is the highlight of the economic calendar.

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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