Market Update – March 20, 2021

After touching new record highs earlier in the week, stocks fell and finished lower for the week. Although the prospects for higher economic growth continue to improve, the potential for a spike in inflation added to stock volatility. The Federal Reserve reiterated this week their willingness to let inflation run above target for a time before considering raising short-term interest rates. Covid-19-related news was mixed this week, as the vaccination effort in the U.S. ramped up while several European countries wrestled with concerns surrounding the AstraZeneca vaccine, increasing coronavirus cases, and more stringent lockdown measures in France, Italy and other regions.

For the week, the S&P 500 Index finished down 0.8%, while the Dow Jones Industrial Average fell 0.5%. Year to date, the S&P is up 4.2%; the Dow has gained 6.6%. First-time unemployment claims increased from last week’s figure to 770,000, while continuing claims fell marginally to 4.1 million. Promisingly, there was a sharp reduction in the number of self-employed and gig workers filing for unemployment through the new federal unemployment program. Monthly retail sales and new home construction starts were both down in February. That said, it is likely that the severe cold weather in the southern part of the U.S. led to depressed activity and does not signal the beginning of a negative trend.

Federal Reserve Chairman Jerome Powell stated that most Fed members anticipate holding short-term interest rates near zero through 2023, even as they expect GDP growth to accelerate to 6.5% during this year’s recovery and remain above 3% in 2022. The Fed’s predicted inflation figures of 2.2% (2021), 2.0% (2022), and 2.1% (2023) are above their stated target rate of 2.0%; however, the Fed has recently signaled that they are fine with inflation running a bit above target to “average out” the past several years of low inflation. With longer 10-year Treasury rates continuing to creep up on the expectation for higher economic growth and inflation, we will continue to analyze Fed commentary regarding their short-term interest rate outlook and interpret the effect on asset prices.

The U.S. held their first round of high-level discussions with representatives from China this week. Meeting in Alaska, the two sides had tense exchanges over a range of issues – including tariffs, intellectual property, human rights, racism, and China’s relationship with Taiwan. In a conflict that transcends presidential administrations, there will be no easy resolution to the ongoing struggle between the U.S. and China. The official Chinese economic growth estimate for 2021 also exceeds 6%, which could serve as a catalyst for strong international stock performance through the balance of the year.

As we continue to navigate through the pandemic, our commitment remains to be here for you each step of the way. As always, please contact us with any questions about the economy and your financial plan.

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