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Key Points for the Week

  • The economic recovery continues with employment showing improvement. Initial jobless claims fell below 600,000 for the first time since mid-March 2020.
  • The Consumer Price Index surged 0.6% last month primarily due to increasing gasoline prices. Core inflation rose 0.3%.
  • Retail sales surged 9.8%, fueled by government stimulus.

The direction of bond yields is influenced by investors’ expectations for economic growth, among other factors. When economic growth is expected to weaken, bond yields tend to move lower. When economic growth is expected to strengthen, bond yields tend to move higher.

Last year, U.S. Treasury yields began to climb higher on optimism that vaccines, in tandem with fiscal and monetary stimulus, would strengthen economic growth. The yield on 10-year Treasuries rose more than 1 percent in just a few months, from 0.54 percent at the end of July 2020 to 1.75 percent at the end of March 2021.

Last week, Treasury yields moved lower. Ben Levisohn of Barron’s explained it’s:

…possible that after yields nearly doubled to start the year, investors were simply waiting to see that the move higher was over before buying again. Of course, nearly everyone was predicting a 2 percent yield on the 10-year, while often forgetting that rarely does anything in financial markets move in a straight line.

Ben Levisohn, Barron’s

There are reasons for investors to be optimistic about what may be ahead and there may be reasons for concern:

  • Corporate earnings are positive, so far. Corporate earnings are encouraging. Almost 10 percent of Standard & Poor’s 500 Index companies have reported first quarter earnings. Earnings show how profitable a company was during a given period of time. So far, 81 percent of the companies have reported higher than expected earnings per share, reported John Butters of FactSet.
  • Vaccine rollouts offer mixed messages. As of last weekend, about 50 percent of Americans 18 and older had received at least one dose of the vaccine and about 32 percent were fully vaccinated, reported the Centers for Disease Control.

There is trepidation about the effectiveness of mass vaccinations and the pace at which people in other regions of the world are being vaccinated, reported Chris Wilson of Time. In the United States, the pause in distribution of single shot vaccines caused some investors to be concerned, reported Hope King of Axios.

  • Economic data was compelling. U.S. economic data released last week showed declines in weekly unemployment claims and strong retail sales numbers. The news strengthened expectations that economic recovery remained on track, reported Simon Jessop and Hideyuki Sano of Reuters.

Other issues that may be weighing on investors include uncertainty about infrastructure spending and sanctions on Russia.

No one is ever certain what the future will bring. It’s one reason for having a well-diversified portfolio.

This Week in the Markets

The U.S. economy seems to be returning to firmer footing based on economic data released last week. Initial jobless claims fell to 576,000 and are the lowest they have been since mid-March 2020. The number of people receiving some form of government jobless support dropped from 18.2 million to 16.9 million, based on data from three weeks ago.

The U.S. consumer helped to drive up employment. U.S. retail and food service sales rose 9.8% and benefited from the wide distribution of checks by the government to individuals. Restaurants and bars experienced a 13.4% gain, indicating vaccine-supported re-openings contributed to the growth. Consumer prices rose 0.6% last month and have risen 2.6% in the last year. Increased gasoline prices contributed to the large monthly gain.

Stock markets continue to rally. The S&P 500 and MSCI ACWI index added last week as markets showed strength. The Bloomberg BarCap Aggregate Bond Index gained as well despite the tendency for strong economic data to pressure bond prices.

This week, new data on existing and new home sales will provide insight into how sales volume and prices are adjusting to the low number of houses available for sale. First quarter earnings reports also will pick up this week.

Work Place Observations

The impact of COVID-19 on workplaces has been profound. As we move toward a new normal, it is likely work as we once knew it will be changed forever. Employer benefits is one area in which there may be significant change.

Remote work options may be necessary for employers to remain competitive, according to the Pulse of the American Worker Survey:

…a “war for talent” may be looming if companies don’t address workers’ needs…[the] war will be won by companies who affirm their standing as a top destination for both current and future talent. These employers will cultivate cultures that reflect what is most important to workers, such as remote-work options and flexible work arrangements, opportunities for career development and mobility, and comprehensive benefits that foster employee health and well-being and build financial resiliency.

Pulse of the American Worker Survey

Financial wellness has become a top concern for Americans – at work and at home. Two-thirds of survey participants said they spent more time thinking about their finances in 2020 than they have in prior years, and they identified key barriers to financial security which included:

  • 72% Lack of retirement savings
  • 65% Lack of emergency savings
  • 65% Not enough invested to grow
  • 64% Too many bills
  • 58% Not enough financial “know-how”
  • 55% Too much debt

Some employers are considering new benefits that help address these issues, including emergency savings programs and other financial wellness options.

If you have concerns about any of these issues, please contact us.

First Quarter Report Card

The first quarter report card for the U.S. economy continues the improvements that started last year. First quarter gross domestic product (GDP) is expected to rise more than 5%. At the beginning of the quarter, roughly 2% growth was expected. A combination of economic stimulus, vaccine distribution, and general economic momentum contributed to the impressive economic data.

Retail and food service sales rose 9.8% in March compared to February. The surge in retail activity was created by the flood of checks from the government to individuals. Big surges in January and March were driven by stimulus checks. April’s data will be closely watched to see if there is another negative month, like February, or if spending will remain strong.

The wide distribution of vaccines contributes to the potential for sustained economic growth. Sales at restaurants and bars rose 13.4% last month after only climbing 0.7% in February. While supported by stimulus checks, more people eating out is likely being driven by a steady stream of vaccinations that are helping them to feel safe about venturing out.

Another key to maintaining the growth trend is getting people back to work. Initial jobless claims plummeted 193,000 to 576,000 in the most recent report. It is the first time claims have been that low since mid-March of last year. The improvement means more people returning to work and a steady level of income.

The Consumer Price Index (CPI) showed some signs of spiking higher, but closer examination shows inflation picking up only slightly. Much of the 0.6% in monthly prices and the 2.6% gain over the last year can be attributed to increased gasoline prices. Gasoline prices rose 9.1% over the last month and 22.2% over the last year. Energy and fuel prices are often volatile. Core CPI, which excludes energy, increased only 0.3% and is up just 1.6% over the last year. As we have mentioned in previous updates, inflation dropped sharply in the early months of the pandemic. As those months drop off the 12-month measurements, inflation will temporarily jump upward.

The industrial sector also contributed to the gains. Industrial production rose 1.4% last month. Manufacturers don’t receive the same benefit from checks to individuals as retailers do. The manufacturing recovery may also be delayed by supply chain challenges. The microchip shortage and temporary blockage of the Suez Canal may affect the ability of manufacturers to produce goods as planned. Stronger growth in the industrial sector would be a good indicator of a sustained economic rally.

If the U.S. economy were a student, her report card would bring great cheer. Yet, economic recoveries are never finished. Like an endless school semester, the tests keep coming. The big test for April is whether the great performance in March can be sustained without the stimulus making the test so much easier.

Commercial Flights

Another statistic showing an improving consumer confidence to venture out, is the number of commercial flights. According to Flight Tracker, the onset of COVID dropped the number of flights from near 100,000 per day to under 25,000 per day. The number of flights has been steadily increasing for the past year and recently was over 78,000.

Be Aware of New Text Message Scam

The IRS and Security Summit have issued a warning regarding a new text message scam which cites the availability of an economic impact payment. The goal is to have the recipient reveal bank account details. If you have any questions about this scam, please contact us.

Did you Know? This Week in History

April 22, 1970: The first Earth Day

Earth Day, an event to increase public awareness of the world’s environmental problems, was celebrated in the United States for the first time on April 22, 1970. Millions of Americans participated in rallies, marches and educational programs across the country.

Earth Day was the idea of Senator Gaylord Nelson of Wisconsin, a staunch environmentalist who hoped to provide unity to the grassroots environmental movement and increase ecological awareness.

Earth Day has been celebrated on different days by different groups internationally. The United Nations officially celebrates it on the vernal equinox, which usually occurs about March 21. The 50th anniversary of Earth Day will be celebrated on April 22.

Weekly Focus

Don’t watch the clock; do what it does. Keep going.

Sam Levenson, Humorist

Every day I get up and look through the Forbes list of the richest people in America. If I’m not there, I go to work.

Robert Orben, Comedian