Stocks ended a volatile week mixed as bond yields rose. Most U.S. indices were lower with foreign and emerging market indices up slightly. The Russell 2000 Small Cap index was the worst performer.
The FED met this week and Chairman Powell said the Fed intended to provide support to the economy as long as it takes. The FED members voted unanimously to keep short term rates near zero. The majority of FED members anticipate short term rates remaining near zero through the end of 2023. Although seven FED members anticipate raising rates in 2022 or 2023. The FED is maintaining the purchase of $120BN of bonds each month.
Despite the FED’s apparent dovishness, traders feared that bond yields would continue to rise given the large amount of Federal borrowing and anticipated economic growth. What the FED has not done yet is to announce any type of yield curve control. An announcement to sell short term bonds and replace them with longer term bond purchases may accomplish this or simply an increase in longer term bond purchases. However, the FED gave no indication of considering that.
The FED did announce on Friday that it was ending a reprieve granted last year, easing capital requirements for banks. Typically, banks benefit from a steeper yield curve with low short term rates and higher long term rates. However, the FED’s action on Friday sent bank stocks lower. The FED did hint that it would consider a broad revamp of the rules. Therefore, the effects are unknown and the markets may have overreacted.
Other central banks met this week with the Bank of England leaving policy unchanged and issuing upbeat forecasts. The Bank of Japan , that has been buying stock ETFs since 2010 announced today it would stop purchases of the Nikkei 225 ETFs which it conceded were distorting the markets.
Treasury yields rose with the 30-year bond yield closing at 2.442% and the 10-Year note closing at 1.727%. Crude oil fell to $61.48 a barrel while natural gas fell to $2.573 per MMBTUs. The U.S. dollar index rose to 91.96 and gold rose to $1741.30 an ounce.
In the economic numbers this week:
- China reported:
- Industrial output rose 35.1% from the regional shutdown a year ago.
- Home sales have risen 143.5% for the first two months of the year versus a year ago.
- Fixed asset investment rose 35.0% from a year ago.
- Unemployment rose from 5.4% in January to 5.5% in February.
- The Federal Reserve reported that industrial production fell 2.2% in February down from a revised 1.1% in January. The decline was attributed to weather disruptions and supply chain problems such as computer chips shortages affecting auto production. Manufacturing fell 3.1%. Auto production fell 8.3%. Utility production rose 7.4% due to severe winter weather.
- The Commerce Department reported:
- Retail sales fell 3.0% in February. The decline was attributed to severe winter weather and follows a revised 7.3% increase in January following stimulus checks.
- Housing starts fell 10.3% in February, the lowest number since August. Permits, an indicator of future starts, fell 10.8% but the number of permits has exceeded the number of starts for seven months in a row pointing to increased starts in the months ahead. The decline in starts was mainly attributed to severe winter weather in February.
- The Labor Department reported:
- A seasonally adjusted 770,000 workers filed initial claims for unemployment in the week ending March 6th. This was an increase of 45,000 from a revised 725,000 the week before.
- The 4-week moving average, designed to smooth out volatility, was 746,250, a decrease of 16,000 from the previous week’s revised average.
- Continuing claims were little changed at 4.1MM in the week ending March 6th.
- A broader measure of claims including extended benefits, pandemic assistance and other programs fell from 20.1MM to 18.2MM in the week ending February 27th.
- For the full unemployment report go here: https://www.dol.gov/ui/data.pdf .
- The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf . Also, the EIA reported in the prior week:
- Field production of crude oil was unchanged at 10.9MM BPD.
- Natural gas storage fell 11BN cubic feet and is below the average level at this time of year during the past five years.
- Baker Hughes reported the number of active oil rigs rose 9 to 318. The number of active natural gas rigs was unchanged at 92.
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Loren C. Rex, CFP®, MA Erik A Smith AIF®
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
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Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.