Market Monitor: March Update

Headlines and Highlights
  • Stocks reach new milestone: The S&P 500 Index topped 4,000 for the first time as $1.9 trillion in government stimulus and the efficiency of the vaccine rollout fueled investor optimism. Value and cyclical stocks continue to lead the way in 2021 amid expectations for improved economic growth; the iShares Russell 1000 Value ETF far outperformed its growth peer (6.0% to 1.8%) for a second straight month. Real estate investment trusts had their best month since November. Rising Treasury yields continue to pressure taxable bond returns.
  • Biden proposes $2 trillion in infrastructure spending: President Joe Biden unveiled his second big-ticket plan less than three weeks after signing the coronavirus relief bill into law, this one aimed at revamping U.S. transportation infrastructure and fighting climate change. The proposal calls for spending $2 trillion over eight years and raising the corporate tax rate to 28% from the current 21% to help pay for it. It is certain to undergo major revisions in Congress.
  • Manufacturing sector surges in U.S. and abroad: A gauge of U.S. factory activity expanded last month at the fastest rate in 37 years amid a jump in new orders. The Institute for Supply Management said its index climbed from a reading of 60.8 in February to 64.7 in March – the highest level since December 1983. Factories in Asia and Europe reported a similar surge in a reflection of rising confidence in a sustained global recovery.
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Sources: Morningstar, Altair Advisers

Our Views
  • Accelerating vaccinations will reinvigorate the U.S. economy, and to a somewhat lesser extent the global economy as most other nations inoculate at a slower pace. Coupled with stimulus payments from the American Rescue Plan, widening vaccine distributions should enable the economy to grow in 2021 at its fastest year-over-year pace in decades. The recent increase in coronavirus cases and hospitalizations, as some states relax COVID-19 precautions and virus variants spread, is the biggest cautionary note.
  • The employment outlook for 2021 is brightening, as evidenced by Friday’s report showing a robust 916,000 jobs added in March with the jobless rate falling to 6.0%. But there is still a long way to go to get back to the pre-pandemic employment picture. There are still 7.9 million fewer Americans employed than before the pandemic.
  • Inflation could rise to around 3% as a consequence of stimulus payments, additional unemployment benefits, the economy’s reopening and personal savings that are roughly $1.3 trillion more than a year ago. All of these factors will spur greater spending. We expect the rise in inflation to be temporary, however, partly because the newly approved government benefits will expire within months.
  • Jerome Powell’s comment this week that the economy’s swifter-than-expected recovery will ultimately allow the Federal Reserve to roll back some of its support at an unspecified future date should not be a concern for investors. Powell’s track record as Fed chair and his repeated pledge to be gradual and transparent when the time comes to reduce the central bank’s bond purchases should help avoid a repeat of the “taper tantrum” that roiled markets in 2013.
  • A corporate tax hike that would be the first major federal tax increase since 1993 is likely to be approved regardless what changes are made to Biden’s infrastructure package. The nonpartisan Tax Policy Center says companies’ shareholders will bear most of the additional tax burden, although we do not foresee a major impact on the stock market.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice