Tag Archives: Inflation

Business

Dow Jones Futures: Tech Futures Tumble As Treasury Yields Spike On Inflation Fears; Williams-Sonoma Breaking Out

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Dow Jones futures were little changed early Thursday while S&P 500 futures fell solidly and Nasdaq futures tumbled, as the 10-year Treasury yield moved above 1.7% for the first time since January 2020. That comes amid concerns that the Federal Reserve and other central banks will let inflation pick up too fast.




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That’s a reversal from Wednesday, when a dovish Fed meeting policy statement and comments from Fed chief Jerome Powell spurred a stock market rally. The Dow Jones hit a record while the Nasdaq reversed higher as Treasury yields pared sharp gains.

Williams-Sonoma (WSM), Five Below (FIVE) and Upstart Holdings (UPST) headlined key earnings after the close. Meanwhile, Translate Bio (TBIO) and Lordstown Motors (RIDE) also moved on news.

Treasury Yields Spike

The 10-year Treasury yield jumped 9 basis points to 1.73%, as the day two reaction to the Fed meeting was a lot different than on Wednesday. On Wednesday, the Federal Reserve signaled it won’t start rate hikes before 2024, unchanged from before. Fed chief Jerome Powell said it’s not time to talk about tapering the central bank’s big asset purchases.

That’s despite more bullish economic forecasts, as coronavirus restrictions wane and stimulus checks go out from the new $1.9 trillion spending package.

The Fed sees 2.4% inflation this year, but cooling to 2% in 2022. The Fed has a 2% inflation target, but says it’s OK with price increases exceeding that level for a short time.

The 10-year Treasury yield hit 1.69% before the Fed meeting announcement. The 10-year yield ended up 2 basis points to 1.64%, slightly below were it was before the 2 p.m. ET Fed announcement.

But while the Fed’s calm over inflation soothed investors on Wednesday, that didn’t last long.

If the Fed isn’t worried about inflation, bond traders will. With commodity prices high and U.S. retail gasoline prices now up for 46 straight days, some underlying inflation pressures are bubbling up.

Dow Jones Futures Today

Dow Jones futures was about flat vs. fair value. S&P 500 futures fell 0.6%. Nasdaq 100 futures plunged 1.65%. The Nasdaq composite will likely test its 50-day moving average again.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live.

Coronavirus News

Coronavirus cases worldwide reached 121.94 million. Covid-19 deaths topped 2.69 million.

Coronavirus cases in the U.S. have hit 30.29 million, with deaths above 550,000.

Stock Market Rally Today

U.S. Stock Market Today Overview
Index Symbol Price Gain/Loss % Change
Dow Jones (0DJIA) 33016.16 +190.21 +0.58
S&P 500 (0S&P5) 3974.16 +11.45 +0.29
Nasdaq (0NDQC ) 13525.20 +53.63 +0.40
Russell 2000 (IWM) 232.37 +1.87 +0.81
IBD 50 (FFTY) 47.63 +0.42 +0.89
Last Update: 4:22 PM ET 3/17/2021

The stock market rally traded mixed to lower for much of the session before the major indexes rallied together following the Fed meeting and Powell.

The Dow Jones Industrial Average rose 0.6% in Wednesday’s stock market trading. The S&P 500 index advanced 0.3%. The Nasdaq composite climbed 0.4% after slumping nearly 1.5% intraday.

The 10-year Treasury yield, which jumped to a 13-month high of 1.69%, pared gains to 1.64%.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 0.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) dipped 0.2%. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.9%.

Reflecting more-speculative story stocks, Ark Innovation ETF rose 0.75% and Ark Genomics ETF 1.1%. But both ARK ETFs are down nearly 2% in premarket trade, as Tesla (TSLA) and many other highly valued holdings retreat with spiking Treasury yields.

Key Earnings

Williams-Sonoma reported better-than-expected earnings and a third straight quarter of accelerating revenue growth. The upscale home furnishings and housewares retailer reported same-store growth above 20% in all its chains. Williams-Sonoma also announced a $1 billion buyback and an 11% dividend hike.

WSM stock surged 11% in premarket trade, signaling a move above a 151.26 buy point from a seven-week cup base, according to MarketSmith chart analysis. Williams Sonoma also has a 140.24 early entry from a handle that’s too low in the base to be valid.

WSM stock is part of the IBD 50.

Five Below earnings also beat while guidance was far above views. FIVE stock popped 5% early Thursday, back past a 198.20 flat-base buy point in a base-on-base pattern.

Upstart Holdings easily beat EPS views but revenue slightly missed. The AI lending platform guided higher. Upstart also announced it’ll buy Prodigy, a retail automotive retail software maker. UPST stock skyrocketed 37% early Thursday. That’ll send Upstart stock far above its 50-day line but still below its Feb. 11 peak of 105.58.

Technically, Lordstown Motors reported earnings, but the EV pickup startup has essentially zero revenue. Lordstown said its Endurance full-size pickup will start production in September, with the first beta vehicles ready for testing by the end of this month. An electric van should start output in late 2022. But Lordstown also disclosed an SEC probe. That comes after Hindenburg Research accused Lordstown of fraud. RIDE stock, which plunged last week on the Hindenburg report, fell 5% before the open.

Finally, Translate Bio reported weak results for its cystic fibrosis treatment. TBIO stock plunged 26% in premarket trade. Translate Bio stock had been holding its 21-day and 50-day lines.

Stock Market Rally Analysis

The Fed decision and Fed chief Powell’s comments initially gave a much-needed boost. The Nasdaq was undercutting the 50-day line Wednesday and testing its 21-day, before rebounding on the policy statement and Powell. Some big 2020 winners such as CrowdStrike (CRWD) and Twilio (TWLO) rebounded from their 50-day tests. Meanwhile, some recent breakouts and stocks flashing early buys shored up, including MKS Instruments (MKSI), Westlake Chemical (WLK) and 5G chipmaker Qorvo (QRVO).

But as Nasdaq futures today show, the stock market rally remains sensitive to Treasury yields, especially growth names. All of Wednesday’s gains, and then some, could be undone. The tech sector remains a work in progress. If the Nasdaq composite drops below the 50-day line and continues selling, tech stocks are going to come under heavy pressure.

Meanwhile, reopening plays have made big moves. Many are above pre-coronavirus levels, even though earnings are likely to be well below pre-pandemic reports. So don’t get too carried away.

Focus on stocks that are trading above their 21-day and 50-day moving averages.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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Business

European Central Bank will not react to inflation blips: Lagarde

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President of the European Central Bank Christine Lagarde holds a press conference during the informal meeting of European Union ministers for economic and financial affairs on September 11, 2020 in Berlin, Germany.

Hayoung Jeon – Pool | Getty Images

LONDON — European Central Bank President Christine Lagarde said the bank will not respond to inflation “blips” on Thursday, as prices rise in the euro area.

The ECB has struggled to achieve its inflation target of close to, but below, 2% over the past few years, which has been exacerbated by the coronavirus pandemic. However, recent data has shown an uptick in prices.

Headline inflation figures released in January showed inflation at 0.9% year-on-year, the highest level in almost 12 months. In addition, core inflation, which removes volatile items such as energy and food prices, reached 1.4% year-on-year in January from 0.2% in December.

“We are not going to be focused on blips, on not sustainable moves and I think we need to warn ourselves together about the fact that we will see inflation numbers go up in the course of (20)21,” Lagarde told European lawmakers Thursday.

“We cannot confuse the forest for the tree. A short-term inflation movement that is related to temporary factors of a transitory nature should neither precipitate any particular move, quite to the contrary. So, we are not playing catch up at all. We are actually trying to prevent that yields step ahead of economic developments,” Lagarde also said.

The recent increases in prices in the euro zone have been linked to new tax rules in Germany as well as a new carbon tax, in addition to higher energy prices. The impact of the first two is expected to phase out over time.

“While we believe that 2021 will be the year of the recovery, we don’t see it happening until the second half of (20)21, and we believe that any yield increase that would operate a bit as a brake would be undesirable.”

Speaking at a press conference last week, Lagarde had said the ECB is expecting inflation to be volatile in the coming months, but that it is likely to be limited in time. The ECB estimates an inflation rate of 1.5% for 2021 and 1.2% in 2022. 

More bond buying

After its latest policy meeting, last week, the central bank said that its bond purchases will increase “significantly” in the next quarter.

Borrowing costs have been rising in the region since February. This could mean more spending on debt servicing for euro zone governments, which could potentially derail an economic recovery.

Speaking Thursday, Lagarde said it may take a while for this boost in purchases to materialize.

“While records of our weekly purchases will continue to be distorted by short-term noisy factors, such as occasionally lumpy redemptions, the step-up in the run-rate of our program will become visible when ascertained over longer time intervals,” she told European lawmakers.

The ECB’s Pandemic Emergency Purchase Program, or PEPP, has been in place for a year now and it is set to last for another 12 months, totaling up to 1.85 trillion euros ($2.21 trillion).

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Business

Cramer on buying growth stocks after inflation scare shakes up market

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CNBC’s Jim Cramer advised that market players have two ways to approach high-flying growth stocks that teetered and tottered their way through a volatile session on Wall Street Tuesday.

Investors can choose to join in on the sell-off that has dropped some tech names like Apple into negative trading territory this year.

The other choice — taking a cue from Federal Reserve Chair Jerome Powell’s restated commitment to leave interest rates at low levels — is to hold on for the ride and consider loading up on worthy stocks discounted from their highs, Cramer said after the market closed mixed.

“After today’s late afternoon rebound, it’s not too late to sell the more egregiously expensive stocks if you want to,” the “Mad Money” host said. “But as for the better growth stocks, down more than 10% from their highs, call me a buyer. Not all at once, not big, but a buyer nonetheless in any retest of that 9:47 a.m. low that we saw today.”

Cramer’s assessment of the current state of the market follows a roller-coaster trading day where major U.S. averages bounced from their session lows. The market suffered a steep sell-off in the morning, with the Nasdaq Composite down almost 4% at its trough, before the blue-chip Dow Jones and benchmark S&P 500 managed to etch out modest gains at the close.

The Dow advanced more than 15 points to 31,537.35 for a 0.05% gain. The S&P 500 finished 0.13% higher at 3,881.37 to end its losing streak at five. The tech-heavy Nasdaq could not muster enough for a positive day, falling 0.5% to 13,465.20, extending Monday’s losses.

“I’m happy to entertain the idea that you need to ring the register here, but I happen to like growth stocks in a reflation scare. I like growth stocks when risk is on. I like growth stocks when risk is off,” Cramer said.

“If you want to hold on to the growth stocks … you have to be prepared to take some pain, just like in late 2015 and early 2016 — that was the last great moment to buy these stocks — or you can just do some selling if you want to and try to swap back in at a lower level,” he added.

The market has toiled through a rotation as investors swap growth and tech stocks that outperformed throughout the pandemic for value plays of companies that are expected to see business return as the economy reopens. The Nasdaq is now 4.5% off its closing high earlier this month.

Worries that an inflation revival could trigger the Fed to raise interest rates, as it did in twice in a three-month span between 2015 and 2016, shook investors out of growth stocks in recent days, Cramer said. Higher rates pose a challenge to growth and utilities stocks.

Share prices in Apple, Salesforce, and ServiceNow are all down at least 3% this week.

During an appearance before Congress Tuesday, however, Powell told lawmakers that inflation remains “soft,” the labor market faces ongoing challenges and that the central bank was committed to its current monetary policy.

That reassured investors about interest rates, helping the market recover some losses.

“This time our Fed chief has vowed to hold off on raising rates — too many unemployed — but there will come a time and a point where these growth stocks will be somewhat hopeless,” Cramer said. “They’ll kind of look like they did today … before people came in to buy.”

Correction: This story has been updated to reflect the correct number of points the Dow advanced by.

Disclosure Cramer’s charitable trust owns shares of Apple and Salesforce.

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Business

Stocks drift as yields rise, inflation concerns mount

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Stocks were mixed while commodity prices rallied, as rising Treasury yields and expectations of higher inflation weighed on equity prices.

The S&P 500 pared some losses but held lower intraday, and the index was on track to add for a fifth straight day of gains, for the longest losing streak since February last year. The Dow recovered earlier losses and turned slightly positive. The Nasdaq sharply underperformed, dropping more than 1.5% as tech shares came under more pressure.

Some commodity prices performed more strongly, however. U.S. West Texas intermediate crude oil futures (CL=F) and Brent crude futures (BZ=F) both jumped after Goldman Sachs strategists said in a note Monday that they expected Brent prices to reach $70 in the second quarter and $75 in the third quarter this year amid rising demand. WTI crude oil has already gained 23% this year and exceeded prices from the same time last year.

Prospects of fast-rising inflation during this year’s expected economic recovery have pushed bond prices lower and yields up sharply. The yield on the benchmark 10-year Treasury note (^TNX) briefly ticked above 1.39% on Monday to reach a fresh one-year high, increasing the specter of higher borrowing costs for companies. Prices of copper jumped above $9,000 per ton on the London Metal Exchange, marking the highest level in nine years as tightening supplies, rising inflation and notions of significant infrastructure programs out of the U.S. and other countries led to expectations of increased demand.

Since strong COVID-19 vaccine efficacy data was first announced in November, traders have been positioning for the likelihood of a strong economic growth later this year, as the vaccine distribution eventually allows more businesses to reopen. As such, many traders have been rotating away from the high-growth tech stocks that led the indexes higher for much of last year. Instead, they have favored more economically sensitive equities and asset classes in anticipation of a post-pandemic recovery.

“Equity fund inflows have rebounded sharply during the past few months alongside optimism around an economic recovery. The rotation into equity funds has most favored strategies that benefit from accelerating economic growth,” Goldman Sachs strategists led by Arjun Menon said in a recent note, based on an analysis studying 507 equity mutual funds. “[Emerging market]-focused, small-cap, value and cyclical sector equity funds have experienced the largest inflows. The secular migration into ESG-focused funds has persisted, and we expect this trend will accelerate under the unified Democratic government.”

Moreover, about 57% of mutual funds have outperformed their benchmarks in 2021 so far, representing the highest share at this point in a year in nearly a decade, the strategists added.

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1:53 p.m. ET: U.S. has so far administered more than 64 million doses of COVID-19 vaccines as death toll approaches 500,000: CDC 

The COVID-19 vaccine rollout in the U.S. has so far seen just under 64.2 million doses administered to Americans as of Monday morning, according to an update from the Centers for Disease Control and Prevention. Additionally, 75.3 million doses have so far been delivered to states, inclusive of both Moderna’s and Pfizer’s and BioNTech’s vaccines. The latest update comes as the COVID-related death toll in the U.S. nears a half a million, according to data from Johns Hopkins.

Winter weather across much of the U.S. has weakened the pace of vaccinations over the past week, though a deluge of additional inoculations are expected to be available in the coming months. Approximately 145 million doses are poised for delivery in the next five-and-a-half weeks, and another 200 million are expected by the end of May, according to the Associated Press. The Biden administration is currently handily tracking toward achieving its goal of administering 100 million doses in President Joe Biden’s first 100 days in office – so far, some 45 million doses have been administered since Inauguration Day on January 20. 

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11:38 a.m. ET: S&P 500, Dow pare losses while tech shares slump

Here’s where markets were trading as of 11:38 a.m. ET:

  • S&P 500 (^GSPC): -19.81 points (-0.51%) to 3,886.90

  • Dow (^DJI): +2.17 points (+0.01%) to 31,496.49

  • Nasdaq (^IXIC): -210.75 points (-1.5%) to 13,664.50

  • Crude (CL=F): +$1.86 (+3.1%) to $61.10 a barrel

  • Gold (GC=F): +$32.50 (+1.83%) to $1,809.90 per ounce

  • 10-year Treasury (^TNX): +0.5 bps to yield 1.35%

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9:44 a.m. ET: ‘It’s the right thing to do’: Yellen restates call for robust fiscal stimulus, reaffirms support for $1,400 direct checks

Treasury Secretary Janet Yellen doubled down on her call for another significant fiscal package to combat the COVID-19 crisis in the U.S., suggesting that the benefits of measures like President Joe Biden’s proposed $1,400 stimulus checks would ultimately do more good than harm to the economy.

“The principle of wanting to get money targeted to those who have suffered the most is an important and valid principle. And the American Rescue Plan does that in many different ways though targeted food assistance, unemployment compensation, some rental assistance for low income people who face eviction, and in other ways, and that’s pretty well-targeted,” Yellen told Andrew Ross Sorkin during The New York Times DealBook DC Policy Project webcast. “But the truth is, there are pockets of pain that go beyond what can be reached in those highly targeted ways.”

“Take the example of people who have had to drop out of the labor force because they have children who weren’t in school, so they face a loss of income. Many are not eligible for unemployment insurance. And some of those face food insecurity,” she added. “You’ve got 24 million adults who say they don’t have enough to eat … 15 million people who are behind on their rent. And it’s not so easy in a highly targeted way to help those people.”

“So my view would be that the checks for example, $1,400 checks. Of course we don’t want those to go to very high income individuals and households that have been less affected. But that really helps to make sure that pockets of misery that we know exist out there that aren’t touched by the more targeted things, that help is provided there as well,” she concluded. “And I believe we’re going to be better off for it, and it’s the right thing to do.”

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9:30 a.m. ET: Stocks open lower

Here’s where markets were trading Monday morning:

  • S&P 500 (^GSPC): -25.86 points (-0.66%) to 3,880.85

  • Dow (^DJI): -174.33 points (-0.55%) to 31,319.99

  • Nasdaq (^IXIC): -152.41 points (-1.1%) to 13,719.36

  • Crude (CL=F): +$1.36 (+2.3%) to $60.60 a barrel

  • Gold (GC=F): +$18.80 (+1.06%) to $1,796.20 per ounce

  • 10-year Treasury (^TNX): +1.2 bps to yield 1.357%

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9:14 a.m. ET: Bitcoin prices sink 10%, pulling back from record highs

Bitcoin (BTC-USD) tumbled Monday morning as the cryptocurrency’s prices retreated after a rapid run-up so far this year.

Bitcoin was down about 10% to about $51,400 as of 9:15 a.m. in New York, after rising to a record high of more than $57,600 over the weekend, according to Bloomberg data. the cryptocurrency has still maintained sharp year-to-date gains, however, after entering 2021 at just over $31,000.

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8:36 a.m. ET: Chicago Fed National Activity index points to more growth in January

The Chicago Federal Reserve’s National Activity Index increased more than expected in January as personal consumption improved more than forecast, reaffirming the strong rebound in consumer spending reflected in last week’s retail sales report from the Commerce Department.

The Chicago Fed’s index increased to 0.66 in January from a downwardly revised 0.41 in December. Beneath the headline index, the contribution of personal consumption and housing together rose to 0.35 in January, reversing directionally from -0.06 in December. While employment and production-related indicators both held in positive territory in January, they decreased slightly from December.

Consensus economists had expected the index to increase to just 0.45 in January, according to Bloomberg data. The index posted a positive reading for a ninth straight month in January.

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7:19 a.m. ET Monday: Stock futures point to a lower open

Here’s where markets were trading ahead of the opening bell:

  • S&P 500 futures (ES=F): 3,874.00, down 29 points or 0.74%

  • Dow futures (YM=F): 31,254.00, down 179 points or 0.57%

  • Nasdaq futures (NQ=F): 13,395.25, down 180.75 points or 1.33%

  • Crude (CL=F): +$0.51 (+0.86%) to $59.75 a barrel

  • Gold (GC=F): +$18.30 (+1.03%) to $1,795.70 per ounce

  • 10-year Treasury (^TNX): +2.9 bps to yield 1.374%

A Wall Street sign at the New York Stock Exchange (NYSE) on February 17, 2021 in New York City. (Photo by Angela Weiss / AFP) (Photo by ANGELA WEISS/AFP via Getty Images)

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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Business

Fed officials see economy ‘far from’ where it needs to be, meaning easy policy won’t change soon, minutes show

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Federal Open Market Committee members at their most recent gathering reaffirmed that the central bank will be keeping policy loose well into the future, according to meeting minutes released Wednesday.

With the economy continuing to shake off the effects from the Covid-19 pandemic, the committee, which sets monetary policy for the Federal Reserve, kept policy unchanged.

That meant holding benchmark short-term borrowing rates near zero and maintaining the minimum $120 billion of asset purchases each month.

In a discussion over the Fed’s asset purchase program and interest rate policy, the minutes indicated little chance for a change anytime soon.

“Participants noted that economic conditions were currently far from the Committee’s longer-run goals and that the stance for policy would need to remain accommodative until those goals were achieved,” the meeting summary said. “Consequently, all participants supported maintaining the Committee’s current settings and outcome-based guidance for the federal funds rate and the pace of asset purchases.”

Heading into the meeting, investors had been looking for discussion about when the FOMC might start tapering the pace of its bond buying, or quantitative easing. The post-meeting statement made no mention of the talks, and Fed Chairman Jerome Powell said afterwards that the Fed likely would keep policy accommodative.

Members noted that the QE program, which has taken the Fed’s balance sheet to nearly $7.5 trillion, “had materially eased financial conditions and was providing substantial support to the economy.”

The deliberations come amid concerns central bank officials have over the pace of recovery. Of particular focus is the goal of a ‘broad and inclusive” labor market recovery, across racial, gender and income lines.

The post-meeting statement noted that the speed of economic activity and improvements in the labor market has “moderated in recent months.” The minutes helped amplify Fed sentiment in that regard.

“With the economy still far from those goals, participants judged that it was likely to take some time for substantial further progress to be achieved,” the summary stated.

Since the meeting, Fed officials have been virtually unanimous in saying they don’t expect significant policy changes until more progress is made towards the central bank’s enhanced goal for the labor market. Powell and others have stressed that they won’t start raising interest rates to head off inflation, but rather will wait for actual price pressures to show up before tightening policy.

“In terms of tapering, it’s just premature. We just created the guidance. We said we wanted to see substantial further progress toward our goals before we modify our asset purchase guidance,” Powell said at his post-meeting news conference.

The minutes noted that asset prices are “elevated” and said that vulnerabilities associated with household and business borrowing levels are “notable.” Officials also said some money market and open-ended mutual funds face “significant vulnerabilities associated with liquidity transformation.”

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Business

Despite surging stocks and home prices, U.S. inflation won’t be a problem for some time

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When America’s amusement parks and baseball stadiums no longer must serve as COVID-19 mass vaccination sites, some investors believe that households pocketing pandemic financial aid from the government might start to splurge.

While a consumer splurge could initially boost the parts of the economy devastated by the pandemic, a bigger concern for investors is that a sustained spending spree also could cause prices for goods and services to rise dramatically, dent financial asset values, and ultimately raise the cost of living for everyone.

“I don’t think inflation is dead,” said Matt Stucky, equity portfolio manager at Northwestern Mutual Wealth Management Company. “The desire by key policy makers is to have it, and it’s the strongest it’s ever been. You will see rising inflation.”

Wall Street investors and analysts have become fixated in recent weeks on the potential for the Biden Administration’s planned $1.9 trillion fiscal stimulus package that targets relief to hard-hit households to cause inflation to spiral out of control.

Economists at Oxford Economics said on Friday they expect to see the “longest inflation stretch above 2% since before the financial crisis, but it’s unlikely to sustainably breach 3%.”

Severe inflation can hurt businesses by ratcheting up costs, pinching profits and causing stock prices to fall. The value of savings and bonds also can be chipped away by high inflation over time. 

Another worry among investors is that runaway inflation, which took hold in the late 1970s and pushed 30-year mortgage rates to near 18%, could force the Federal Reserve to taper its $120 billion per month bond purchase program or to raise its benchmark interest rate above the current 0% to 0.25% target sooner than expected and spook markets.

At the same time, it’s not far-fetched to argue that some financial assets already have been inflated by the Fed’s pedal-to-the-metal policy of low rates and an easy flow of credit, and might be due for some cooling off.

U.S. stocks, including the Dow Jones Industrial Average
DJIA,
+0.09%,
S&P 500 index
SPX,
+0.47%
and Nasdaq Composite
COMP,
+0.50%
closed on Friday at all-time highs, while debt-laden companies can now borrow in the corporate “junk” bond, or speculative-grade, market at record low rates of about 4%.

Read: Stock market stoked by stimulus hopes — what investors are counting on

In addition to rallying stocks and bonds, home prices in the U.S. also have gone through the roof during the pandemic, despite the U.S. still needing to recoup almost as many jobs from the COVID-19 crisis as during the worst of the global financial crisis in 2008.

This chart shows that jobs lost to the pandemic remain near to levels seen in the aftermath of that last crisis.

Job losses need to be tamed


LPL Research, Bureau of Labor Statistics

Fed Chairman Jerome Powell said Wednesday that he doesn’t expect a “large or sustained” outbreak of inflation, while also stressing that the central bank remains focused on recouping lost jobs during the pandemic, as the U.S. looks to makes serious headway in its vaccination program by late July. 

Treasury Secretary Janet Yellen on Friday reiterated a call on Friday that the time for more, big fiscal stimulus is now.

“Broadly, the guide is, does it cost me more to live a year from now than a year prior,” Jeff Klingelhofer, co-head of investments at Thornburg Investment Management, said about inflation in an interview with MarketWatch.

“I think what we need to watch is wage inflation,” he said, adding that higher wages for upper income earners were mostly flat for much of the past decade. Also, many lower-wage households hardest hit by the pandemic have been left out of the past decade’s climb in financial asset prices and home values, he said.

“For the folks who haven’t taken that ride, it feels like a perpetuation of inequality that’s played out for some time,” he said, adding that the “only way to get broad inflation is with a broad overheating of the economy. We have the exact opposite. The bottom third are no where near overheating.”

Klingelhofer said it’s probably also a mistake to watch benchmark 10-year Treasury yields for signs that the economy is overheating and for inflation since, “it’s not a proxy for inflation. It’s just a proxy for how the Fed might react,” he said.

The 10-year Treasury yield
TMUBMUSD10Y,
1.209%
has climbed 28.6 basis points in the year to date to 1.199% as of Friday.

But with last year’s sharp price increases, is the U.S. housing market at least at risk of overheating?

“Not at current interest rates,” said John Beacham, the founder and CEO at Toorak Capital, which finances apartment buildings and single family rental properties, including those going through rehabilitation and construction projects.

“Over the course of the year, more people will go back to work,” Beacham said, but he added that it’s important for policy makers in Washington to provide a bridge for households through the pandemic, until spending on socializing, sporting events, concerts and more can again resemble a time before the pandemic.

“Clearly, there likely will be short-term consumption increase,” he said. “But after that it normalizes.”

The U.S. stock and bond markets will be mostly closed on Monday for the Presidents Day holiday.

On Tuesday, the only tidbit of economic data comes from the New York Federal Reserve’s Empire State manufacturing index, followed Wednesday by a slew of updates on U.S. retail sales, industrial production, home builders data and minutes from the Fed’s most recent policy meeting. Thursday and Friday bring more jobs, housing and business activity data, including existing home sales for January.

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Business

Stock Futures Rise Ahead of Inflation Data

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U.S. stock futures climbed Wednesday ahead of U.S. inflation data, suggesting that the major indexes will resume this month’s rally.

Futures tied to the S&P 500 and the Dow Jones Industrial Average gained 0.3%. Contracts on the technology-heavy Nasdaq-100 also advanced 0.3%. Both the S&P 500 and the Dow closed lower on Tuesday after notching record highs earlier in the week.

Stocks have pushed higher this month, with the benchmark S&P 500 notching its eighth record close of the year on Monday. Investors are betting that President Biden’s $1.9 trillion stimulus package will help bolster the economy while vaccinations help reduce Covid-19 fatalities. Investor sentiment has also been buoyed by companies’ quarterly results that have largely proved to be better than expected.

“As long as earnings estimates are going up, stocks are going up,” said Andrew Slimmon, a managing director and portfolio manager at Morgan Stanley Investment Management. “The magnitude of the earnings beats we have seen are so great because earnings have been way underestimated.”

Ahead of the opening bell, ride-hailing firm Lyft rose over 12% after posting a narrower annual loss, suggesting the company is moving toward profitability. Rival Uber Technologies is among the companies scheduled to release its results after the market closes. Uber rose more than 6% premarket.

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