Friday, February 26, 2021

Markets struggle on fears of rising interest rates

Dow declined 337 (but off early lows), decliners over advancers 2-1 & NAZ went up 75 following recent selling.  The MLP index dropped 4 to the 154s along with weakness in the oil market & the REIT index was fractionally lower to the 387s.  Junk bond funds crawled higher & Treasuries continue to be in demand.  Oil fell 1 to the 62s & gold plummeted 45 to 1730

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil62.12
  -1.41-2.2%













GC=FGold   1,728.70
-46.70-2.6%










 

 




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Bouncing back from months of retrenchment, America's consumers stepped up spending by a solid 2.4% in Jan in a sign that theeconomy may be making a tentative recovery from the pandemic recession.  The report from the Commerce Dept also showed that personal incomes, which provide the fuel for spending, jumped 10% last month, boosted by cash payments most Americans received from the gov.  The Jan spending increase followed 2 straight monthly spending drops that had raised concerns that consumers, who power most of the economy, were hunkered down, too anxious to travel, shop & spend.  Last month's sharp gain suggests that many people are growing more confident about spending, especially after receiving $600 checks that went to most adults last month in a federal economic aid package.  The gov also reported that inflation by a measure preferred by the Federal Reserve rose a moderate 0.3% in Dec.  That left prices up 1.5% over the past 12 months, well below the Fed's 2% target.  Concerns that a strengthening economy will accelerate inflation have sent bond yields surging.  Yesterday, the yield on the 10-year Treasury note moved above 1.5% — a level not seen in more than a year & far above the 0.92% it was trading at only 2 months ago.

US consumers rebound to boost spending 2.4% as income jumps

The economy grew at a slightly faster pace in the final 3 months of 2020 than first thought, ending a year in which the overall economy shrank more than it had in the past 7 decades.  Gross Natioinal Product — the broadest measure of economic health — grew at an annual rate of 4.1% in Q4, up from an initial estimate of 4% growth, the Commerce Dept reported.  The revision does alter the nation's annual GDP which shrank 3.5%, the largest decline since 1946 when the US demobilized after World War II.   However, economists believe 2021 will see a significant rebound, helped by further gov stimulus, more widespread distribution of vaccines & continued low-interest rate policies from the Federal Reserve.  Some expect GDP growth in the current qtr could top 9% & for the year, economists are forecasting GDP growth perhaps as high as 6%. That would be the fastest annual GDP growth since the economy expanded 7.2% in 1984 when Ronald Reagan was pres.  The new forecasts represent a significant rebound in optimism in the past month as coronavirus cases have started to come down, sparking a big jump in retail sales.

Government revises fourth quarter GDP up slightly to 4.1%

Americans are still unsure how rapidly the US economy will recover from the pandemic & restore Ms of jobs that have been lost even as the rate of vaccinations speeds up, a new survey showed.  The final reading of consumer sentiment in Feb inched up to 76.8 points from 76.2 earlier in the month, according to a survey produced by the Univ of Mich, matching the forecast.  The overall consumer sentiment index is still 25 points below its precrisis peak, however.  The index of current conditions was unchanged at 86.2 vs. the preliminary Feb reading & down slightly from Jan.  Hopes for a stronger economy later in the year were also muted.  A forward-looking gauge on what consumers expect 6 months from now edged up to 70.7 from 69.8 earlier in the month, but it was still below Jan's mark of 74, the weakest reading in 3 months.  The biggest decline in optimism occurred among households with incomes below $75K a year.  They are facing more financial stress during the pandemic than upper-income Americans who are more likely to work in jobs that can be performed remotely.  The economy got a shot in the arm in Feb, literally, from a rising number of people getting coronavirus vaccinations.  Even more helpful were expanded unemployment benefits & another round of stimulus checks for most families totaling up to $600.  The increasing pace of vaccinations & another nearly $2T in federal stimulus that's set to be approved in the next month will keep the momentum going & should give Americans more reason for optimism in the coming months.

Consumer sentiment improves slightly in late February, but Americans still have big doubts about the economy

Investors are nervous to see the dramatic increase in interest rates during recent months.  Additionally, the bloated relief bill looks to be shaky assuming it gets to the Senate.  Consumer spending data for Jan did not stimulate demand for stocks & the Dow is back to where it was on Feb 4 (shown below).  

Dow Jones Industrials

 






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