Market Monitor: March Mid-Month Update
Headlines and Highlights
- Congress, Biden pass huge economic stimulus: President Biden’s American Rescue Plan Act won swift final approval in Washington, allocating $1.9 trillion to be distributed in direct checks, jobless benefits and funding for state and local governments and schools. The outpouring of aid to combat the economic downturn and pandemic coupled with ramped-up vaccinations strongly boosts the economic outlook. The Organization for Economic Cooperation and Development raised its 2021 GDP growth forecasts to 6.5% for the United States, up from 3.2% in December, and 5.6% for the global economy, up from 4.2%.
- Markets advance even as U.S. tech stalls: U.S. stocks climbed to new records and international stocks also rose in the first half of March. Optimism that the economy will soon fully reopen extended the strong 2021 starts for small caps (up 19.7% year-to-date through March 15th) and value stocks (up 11.9% as gauged by the iShares Russell 1000 Value ETF). In a sign of the changing market environment as the economy revs up, technology stocks are one of the weakest-performing sectors in 2021, up 2.0%. The tech-heavy Nasdaq Composite Index fell into its first correction (a 10% fall or more) since 1999 before recovering. Bond prices remained negative for 2021 as rates edged higher.
- Consumers the most upbeat in a year: Consumer sentiment rose to its highest level since the pandemic began amid positive news on vaccinations, the economy and forthcoming government stimulus checks. The University of Michigan’s monthly sentiment index jumped more than expected this month. Although still below pre-pandemic levels, March was the highest reading since late March 2020. Future expectations rose more than current sentiment compared to a month ago, though both grew significantly.
Chart of Interest
Back Toward Normal? COVID-19 vaccinations and stimulus checks are fueling optimism.
Sources: University of Michigan, Altair Advisers
- U.S. small-cap stocks are outperforming large caps by the largest margin to start the year (nearly 14 percentage points) since 2000. Also based on indexes, value stocks similarly are beating growth stocks in 2021 by the biggest year-to-date margin (11 percentage points) since 2000.
- Bond yields have climbed in recent weeks on growing expectations of stronger economic growth. The 10-year Treasury yield has risen to 1.6% from 1.4% since the beginning of March, approximately back to its pre-COVID level. Both Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen downplayed concerns about this rise.
- The personal savings rate jumped to 20.5% from 13.4% in January following the December stimulus – the highest level since May and as high as it has been since before World War II. This substantial savings is expected to translate into a surge in consumer spending once the economy reopens, igniting growth.
- The pace of price increases has picked up in some areas – such as softwood lumber, iron and steel, and construction materials – as the economy recovers and producers anticipate pent-up demand. We expect overall inflation to rise but the increase should be temporary, especially as the majority of the $1.9 trillion stimulus is one-time distributions or aid programs that expire in 2021. The International Monetary Fund says it sees only limited inflation risk from the U.S. package.
- Job openings among small businesses have returned to pre-pandemic levels, according to the National Federation of Independent Business’s latest monthly survey. The NFIB said 40% of small businesses had openings they could not fill in February, a sharp increase from January.
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