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Weekly Market Update for March 5, 2021

by Jim Ulland

“Enough already,” the market seemed to be saying after taking a drubbing for most of the week. Interest rates, as represented by the 10 Yr Treasury, continued upward but not beyond their level before Covid-19 arrived. Growth stocks, which were up strongly last year, pulled back the most. The Nasdaq turned briefly negative for the year after being up almost 10% at its high.

The Fed Governors were on the speaking circuit and said that slightly higher interest rates were a natural result of the improving economy. However, the Fed is maintaining its policy of low rates into 2023. The market views higher rates as a headwind for economic growth. Other developed countries are keeping rates low which implies that the rise in US rates will flatten soon.

One other market concern is the stimulus package. Several changes have been made to get the votes to pass the legislation in the Senate, such as sending the checks to those in more need rather than to “everyone.” This is termed “better targeting.” The supplemental unemployment benefits were also reduced. Supplemental benefits are on top of ordinary unemployment benefits. Employers argue that too high a benefit level is a deterrent to employees returning to work, since some make more on unemployment. The $15 minimum wage language also was dropped. The final objection is the sheer size of the spending, which the market views as potentially inflationary. Expect a vote this weekend.

The weekly economic news was good. Several states are lifting their lockdowns to various degrees including CT, MA, TX, MS. This helped the February jobs report which showed a net of 379,000 additional jobs. The unemployment rate fell to 6.2%. Expect continued job growth as vaccinations roll out and food and beverage businesses are permitted to reopen. Vacation bookings are only 2% below pre-pandemic levels. Job openings are 4% above. The delay in reopening schools is a problem for students and restricts some parents from returning to work.

Covid cases and deaths have dropped dramatically. Some of this is a result of vaccinations. Johnson and Johnson’s one-shot vaccine was approved and will add substantial supply and convenience. Vaccinations are a critical component to the recovery since even after lockdowns are lifted, people must feel safe if they are to return to normal activities.

2021 is expected to be a period of high economic growth, maybe 5%, whereas 2-3% is average. Part of this week’s market drop was caused by excessive speculation in a variety of small companies. Much of the air in this balloon came out Thursday and Friday morning. Corporate profitability and stock prices are expected to benefit as the recovery develops. The Nasdaq started to recapture losses on Friday afternoon, although this did not prevent a -2.06% loss for the week. The SP 500 was +0.81%. Monday the SP 500 was +2.38%, Tuesday -0.81%, Wednesday -1.31%, Thursday -1.34%, and Friday +1.95%.

If interest rates flatten next week, expect more recovery in the market. Passage of the stimulus package is likely to give the market fuel as well, even with its imperfections. Looking forward, we hope to see a calmer market with reduced speculation.

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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