Market Share Newsletter Vol 3 Issue 6

 

March 16, 2021

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The most recent fiscal stimulus bill aimed to help fight the economic hardships of the pandemic was signed by President Biden this past Thursday. Tens of millions of Americans will be receiving funds deposited into their accounts this week while others will receive paper checks over the next few months. A total of $420 billion is attributed to the direct stimulus payments to individuals. An additional $245 billion and $109 billion is going to unemployment benefits and expansion of the child tax credit, respectively. Approximately $350 billion is allocated to state and local governments. In total, $1.9 trillion will be put into the hands of families, small businesses and municipalities to fight the pandemic and to aid in the economic recovery. The U.S. government’s fiscal response to the pandemic has dwarfed that of the Great Depression (when they still attempted to balance the budget).
 
The economy is gaining strength as regions reopen and the number of COVID-19 cases and hospitalizations drop. The extension of increased unemployment benefits will now run into August and should help the many still looking for work. While this may be the last stimulus bill, we do expect continued announcements of programs and spending that targets infrastructure, environmental issues and other efforts to impact the economy.
 
We expect an increase in the savings rate as we have seen after previous stimulus payments. The continued increase in savings is a significant reason the economy should continue to improve and recover quickly.
 
The stimulus packages have clearly helped the economy survive the largest contraction since the 1930s. But, at least one longer-term question remains: How will we pay it back? Personal and corporate income and estate taxes will likely be part of repaying the money.
 
Whether it be investment decisions or discussions on income, capital gains and estate planning, 1st Source has the depth of knowledge to help you, your family and/or business to find solutions. Thank you for following our commentary.
 
Paul Gifford, CFA
Chief Investment Officer
Wealth Advisory Services
Investment Management Group
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
V.P. and Sr. Fixed Income Portfolio Manager
Wealth Advisory Services
Investment Management Group
ClapsaddleE@1stsource.com
Considerations for your portfolio

The Economy

  • Payrolls in the United States increased by 379,000 in February—well ahead of the 200,000 forecast and the previous month’s increase of 166,000. The leisure and hospitality sector added 355,000 jobs in February which was the first increase since November and the largest increase since September. Labor markets will be challenging in leisure and hospitality as finding enough individuals willing to reenter the workforce over the coming months will be difficult.
  • Retail sales declined more than expected in February as weather-related issues contributed to the 3% monthly decline, but January retail sales were revised to a 7.6% monthly increase from the initial 5.3%. Expectations are for retail sales to accelerate in the coming months as the economy starts to reopen more rapidly and stimulus (both checks and additional unemployment benefits) find their way into consumption.
  • A few more reasons we believe the economy and retail sales should accelerate in the coming months: the U.S. savings rate moved much higher to 20.5% (the third highest on record), total demand deposits are at a record $3.63 trillion in the United States, and according to the Institute for Supply Management the backlog orders in manufacturing are growing at their fastest pace on record. Despite the positive data, filling job openings with the appropriate people is likely to become a bigger strain on the economy.
  • China has experienced a small bout of retail price disinflation as the Consumer Price Index (CPI) declined by 0.2% over the past 12 months. Even though consumer prices declined, producer prices have been rising swiftly in China. Producer prices have increased 1.7% over the same time period as both the prices of mining goods and raw materials have increased by 6.8% and 2.9% for producers during the 12-month period ending February 2021. The monthly increase in Chinese producer prices was 0.8% in February.
Economic Data: Recent
  Actual Survey Prior
Change in Nonfarm Payrolls 379k 200k 166k
Consumer Price Index (CPI) MoM 0.4% 0.4% 0.3%
University of Michigan Sentiment 83.0 78.5 76.8
Retail Sales Advance MoM -3.0% -0.5% 7.6%
Economic Data: Upcoming
    Survey Prior
Initial Jobless Claims   700k 712k
FOMC Rate Decision   0-0.25% 0-0.25%
New Home Sales   880k 923k
Housing Starts   1562k 1580k
ISM Manufacturing chart
Source: Bloomberg
 


Equities

  • The U.S. stock markets continue to be the global leader as the S&P 500 returned slightly over 6% year-to-date through Monday. The developed international markets, as gauged by the MSCI EAFE, have returned 3.84% over the same time period and emerging markets have returned 3.95%. We believe that “as the U.S. economy goes, so does the rest of the world”. The S&P 500 has been led higher this year by energy (+35.8%), financials (+16.1%), and the industrial sector (+9.5%).
  • Costco same-store sales increased by 13% for the quarter ending February 14, 2021 and their e-commerce sales increased by 75.8% over the same time period. The company’s earnings missed expectations as gross margins were disappointing, but revenue was still up approximately 14.5% over the same period a year ago. Costco announced in late February that they would change their starting minimum wage to $16.00 per hour in March.
  • Visa and Mastercard have continued to be positive drivers within the technology sector as they have returned 2.23% and 7.09% year-to-date through Monday while the sector has returned 1.68% over the same time frame. Though they are classified as technology companies, they benefit more from strong consumer and electronic payments. Visa will release their next quarterly earnings on April 30 and Mastercard will report on April 29.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 3,968.9 6.01% 69.66%
Dow Jones Industrial Average 32,953.5 8.17% 66.25%
NASDAQ Composite 13,459.7 4.59% 98.89%
Russell 2000 (small-cap index) 2,360.2 19.71% 128.24%
MSCI EAFE (developed intl.) 2,220.9 3.84% 60.23%
MSCI Emerging Markets 649.2 4.02% 64.32%
 
Equities chart
Source: Bloomberg
 

Fixed Income, Commodities and Currencies

  • The amount of bonds with negative yields around the world has fallen precipitously over the past few months from the peak in December when the total reached over $18.4 trillion and is now hovering around $13.5 trillion. The decline in the amount of negative yielding bonds has come from the expected global economic recovery and inflation starting to show up in the economy.
  • The price of crude oil continues to move higher and is now up approximately 123% year-over-year and it has also benefited energy stocks. The price of oil has drifted lower the past three days amidst concerns that some European countries are pointing to a possible third wave of COVID-19 infections and ultimately affecting demand for energy.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 0.96% -1.69% 2.10%
B’berg Barclays US Aggregate Bond 1.57% -3.25% 0.73%
B’berg Barclays US Corp.High Yield 4.36% 0.48% 21.71%
B’berg Barclays Municipal Bond 1.14% -0.20% 6.41%
Key Interest Rates
  3/15/21 12/31/20 3/17/16
Federal Funds Target Rate 0-0.25% 0-0.25% 0.25-0.5%
3-Month LIBOR 0.19% 0.24% 0.63%
2-Year U.S. Treasury Note 0.15% 0.12% 0.86%
10-Year U.S. Treasury Note 1.61% 0.91% 1.91%
Prime Rate 3.25% 3.25% 3.50%
Commodities & Currency
  3/15/21 12/31/20 YoY Change
Gold 1,729.2 1,899.6 15.83%
Crude Oil 65.4 48.5 123.28%
Natural Gas 2.48 2.54 38.79%
Corn 549.5 484.0 55.81%
Soybean 1,419.5 1,315.3 73.08%
USD: Euro 1.193 1.222 6.48%
 
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
  • Not insured by the FDIC or any Federal Government Agency
  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested

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