Top Weekly Themes
- Johnson and Johnson Paused – Last Tuesday, the CDC and FDA jointly recommended a pause in the use of J&J’s COVID vaccine. The move was prompted due to blood clotting issues experienced by six women days after they were vaccinated. While the issue appears to be rare, six cases out of nearly seven million doses administered, it was fatal in one instance, and another person is receiving critical care. The adverse reactions had a median onset of nine days from the date of vaccination. Given the recent ramp-up in the use of this vaccine, the FDA warned that more such issues may unfold over the days ahead. The decision effectively removed one of the three approved vaccines from the market, if only temporarily. On that point, the FDA indicated the pause was likely to be for just a matter of days. While the announcement weighed on pre-market stock futures, investors ultimately surmised that adequate vaccines will be available, as the S&P 500 finished out the day with a gain.
- Transitory Arrives – Inflation rates, both Consumer Prices (CPI) and Producer Prices (PPI), are published each month with a great amount of scrutiny given to the change in inflation over the past year. Along with the economy in general, these gauges plunged to depressed levels during the early months of the pandemic. With the economy rebounding by the day – aided by massive fiscal and monetary stimulus – the Federal Reserve has warned that an uptick in inflation is likely. Still, Chairman Powell has stressed that he views this as transitory. That is, more a function of coming off depressed price levels a year ago, as opposed to a sustained shift toward higher prices. Arguably, transitory arrived on the morning of April 9, when producer prices (PPI) clocked in with a year-over-year increase of 4.2%, much higher than consensus estimates. This was then followed by consumer prices (CPI) that also exceeded forecasts when they were announced last Tuesday. While both rates surprised to the upside, the real focus is likely to be on the months ahead, particularly once we anniversary the depressed inflationary readings from a year ago. Those low readings will continue through May, when we will see just how transitory is transitory.
- Bond Positioning Extreme – Based on research compiled by Strategas Research Partners near the outset of the year, of the 58 firms polled, less than 10% believed the 10-year Treasury would finish out 2021 with a yield of 1.5% or higher. Most strategists called for rates to remain relatively stable over the next 12 months. In retrospect, that was clearly not the right call. The yield on the 10-year Treasury surged higher (bond prices lower) during the first quarter of 2021, starting the year at 0.93% and closing out the period at 1.74%. With the recent spike in yields, bullish positioning in bonds plunged to just 5%, a level that has only been attained three times over the past decade. When positioning becomes extreme in either direction, at a minimum, it usually foreshadows consolidation. Given the extreme bearishness which existed toward fixed-income, we were candidly not surprised by last week’s pull back in yields. While rates may continue to trend a bit lower over the near-term, our belief is that the recent trend toward higher yields will reassert itself before long.
Returns Table
| Equities | Week (%) | YTD (%) | 1-Year (%) | 3-Year (%) | 5-Year (%) | Div Yield (%) |
|---|---|---|---|---|---|---|
| S&P 500 | 1.8 | 11.5 | 52.4 | 18.44 | 17.18 | 1.36 |
| Russell 1000 Value | 1.2 | 14.5 | 51.5 | 11.82 | 12.13 | 1.92 |
| Russell 1000 Growth | 2.6 | 8.5 | 60.3 | 25.54 | 22.52 | 0.72 |
| Russell 2000 | 0.7 | 14.6 | 92.8 | 14.88 | 16.38 | 0.94 |
| MSCI EAFE | 1.0 | 7.3 | 47.5 | 7.09 | 9.70 | 2.26* |
| MSCI EM (Emerging Markets) | (0.1) | 4.3 | 54.6 | 7.55 | 12.63 | 1.85* |
| Fixed Income | Week | YTD | 1-Year | 3-Year | 5-Year | Div Yield |
| Bloomberg Barclays US Aggregate | 0.4 | (2.4) | 0.2 | 5.10 | 3.24 | 1.49 |
| Bloomberg Barclays US High Yield – Corporate | 0.1 | 1.7 | 18.6 | 6.76 | 7.81 | 4.02 |
| Bloomberg Barclays Municipal Bond | 0.5 | 0.6 | 5.8 | 5.17 | 3.55 | 1.02 |
| Bloomberg Barclays Global Aggregate x US (Country) | 0.5 | (3.6) | 7.9 | 2.19 | 2.51 | 0.90 |
| Commodities | Week | YTD | 1-Year | 3-Year | 5-Year | Current Level |
| Crude Oil WTI (NYM $/bbl) Continuous | 6.5 | 30.8 | 219.4 | (2.0) | 9.5 | 63.5 |
| Natural Gas (NYM $/mmbtu) Continuous | 5.4 | 5.2 | 66.3 | (0.9) | 6.9 | 2.7 |
| Gold NYMEX Near Term ($/ozt) | 0.5 | (6.7) | 2.2 | 9.5 | 7.4 | 1,765.4 |
| Copper Cash Official LME ($/mt) | 2.1 | 18.7 | 81.8 | 10.4 | 13.8 | 9,187.5 |
| Currencies | 1 Week Ago | YTD | 1-Year Ago | 3-Years Ago | 5-Years Ago | Current Level |
| U.S. Dollar per Euro | 1.19 | 1.22 | 1.09 | 1.23 | 1.13 | 1.20 |
| Japanese Yen per U.S. Dollar | 109.27 | 103.25 | 107.42 | 107.53 | 108.74 | 108.73 |
| U.S. Dollar per British Pounds | 1.37 | 1.37 | 1.25 | 1.42 | 1.42 | 1.38 |
Charts of the Week
This $2 trillion is nothing like the prior $2 trillion
Earlier this year the American Rescue Plan was signed into law with a price tag of just under $2 trillion. This stimulus, when added to the stimulus approved in late December, has been nothing short of massive. As the chart above displays, the federal government has distributed a staggering $700 billion to consumers since the start of the year.
This was done against a backdrop of a steadily improving economy, and an unemployment rate that ended March at 6.0%, vs. the 14.7% that existed roughly one month after the first aid package (CARES Act) was passed.
From a fiscal standpoint, this $2 trillion boost to the economy will come without any meaningful offsets, as the legislation was fully financed with added borrowing (i.e., no tax increases that would create a drag on the economy).
On the last day of March, President Biden proposed infrastructure legislation (American Jobs Plan) with a price tag of over $2 trillion. Unlike the American Rescue Plan, this spending will be at least partially financed with higher taxes (personal and corporate), creating an offset (drag) to the stimulus.
While this infrastructure legislation is very much in its formative stages, based on an estimate done by Strategas Research Partners, the net impact could well be a headwind for the economy in 2022, with a very nominal positive impact the following year.
This is the case since the negative effect of the tax increases will be felt more quickly than the positive influences of the added spending on infrastructure projects, which historically take time to initiate.
So, while the price tags of the two pieces of legislation are comparable, around $2 trillion, the stimulus each plan delivers to the economy will be immensely different.
Commentary
Indoor Dining Continues to Rebound
As we have chronicled in the past, the Hospitality sector of the economy has arguably been hit the hardest by the pandemic. For the U.S. economy to fully recover, it is imperative that this industry continues to march toward pre-pandemic levels.
Sadly, looking at just one area, restaurants and bars, employment is still roughly 2 million below pre-pandemic levels.
The good news is that in spite of the fact that only roughly 23% of the U.S. population is fully vaccinated, steady improvement is taking place on multiple fronts. This is evidenced by increasing hotel bookings, higher TSA Checkpoint travel numbers and, as the chart above indicates, a recent and consistent increase in indoor dining reservations.
