Daily Market Notes: 3-18-2021

In another astounding session, the major indices looked like the recent pattern of the Dow doing better due to strength in a few stocks like BA, CAT, GS and so on, while the S&P, Nasdaq and Russell 2000 Index of small stocks were lower, mainly because of the 10-year Note hitting a new high at 1.68%, which was the highest since January 2020. This neurotic obsession with interest rates once again looked like it was going to dominate the day.

Then at 2pm, everything changed for the better as the Fed made its long-awaited announcement and re-assured investors that it expects to keep its key interest rate near zero through 2023.

The central bank’s renewed commitment to leaving rates at rock bottom lows comes even as its latest economic forecast calls for growth of 6.5% this year and for inflation to climb above 2% for the first time in years. Investors had been anxious about the potential for higher inflation to drive up bond yields further and were looking for signs that the central bank had shared its concerns.

After Powell spoke stocks gradually pivoted higher and bond yields fell, with the 10-year yield slipping back to 1.63%, as he re-assured the market that the Fed is going to the extent possible be patient about even talking about raising rates.

As a result, the Dow went from a nominal gain of 42 points at the 2pm announcement time to as much as 221 at 3pm before ending at a new record high of 189 to 33,015. The S&P, as mentioned above, came out of a 21 point decline at that time to a gain of as much as 21 before ending 11 points up to 3974 for its 14th all-time high this year. Also as mentioned above, the Nasdaq really made a sharp upside reversal with a 155 point loss turning into a 121 point advance before it finally ended up by 53 to 13,525. The Russell 2000 followed the same pattern by turning a decline into a closing advance of 17 to 2336.

Breadth numbers turned strongly positive and the VIX slipped further into support down to 19.23.

And once again, the Nasdaq and S&P would have done better if such recent laggards like AAPL and MSFT would have seen fit to join the upside parade, although they did finish off of their worst levels of the session.

Investors are betting big that the economic malaise will dissipate as spring arrives and more Americans get vaccinated against the coronavirus. The $1,400 stimulus checks the Biden administration began sending to individuals last weekend are also helping. But faster economic activity could also translate into some degree of inflation.

The Fed policymakers now forecast that the national unemployment rate will drop faster than they did in December: They foresee joblessness falling from its current 6.2% to 4.5% by year’s end and to 3.9%, near a healthy level, at the end of 2022.

That suggests the central bank will be close to meeting its goals by 2023, when it expects inflation to exceed its 2% target and for unemployment to be at 3.5%. Yet it still doesn’t project a rate hike at that time.

At least some Fed officials appear to be closer to tightening up the central bank’s ultra-low-rate policies. Four of the 18 policymakers now expect a rate hike in 2022, up from just one in December. And seven predict a hike in 2023, up from five in December.

Earnings growth for this year is projected to be higher by a very strong 43% advance while the Fed now sees G.D.P. growth of 6.5%. Earnings for the fourth-quarter of 2020 are just about done and we will soon start to see results for the first-quarter of 2021 for those companies whose fiscal quarter ended on January 31st. The lineup is as follows: yesterday – COUP lower while LEN, CRWD and LE were higher; today – WSM, FIVE, ACN, SIG, UPST higher and DG, RIDE lower; tonight – Dow component NKE in addition to FDX.

Economic reports will see: yesterday –  February housing starts and building permits, which are a future measure of activity, both came in well below consensus at declines of 10.2% and 10.8% respectively; results of F.O.M.C. interest rate meeting are mentioned above and will be detailed in next Tuesday’s Weekly Market Comments; today  – weekly jobless claims rose to 770,000, March Philadelphia Fed Manufacturing Index rose to an astounding 51.8 which was the highest since 1973 would you believe it and the prices paid component rose to its highest level since 1980, February L.E.I. up by 0.2%

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.