It was a rough week that ended with signs of that resolve, which has characterized the rally since 2009, and was on full display in March of last year when conventional wisdom held the market would be down for years. Even the notion of returning to record levels was a pipedream.

Of course, the market didn’t stay down for years. Even as it was building upside momentum, the financial media wondered out loud how it was possible, which was a disingenuous question for those that believe the market is a harbinger of things to come.  Turns out, that’s only for downside prognostications like the inverted yield curve hysteria in the summer of 2019.

Sure, the pace of the move in yields was faster than normal, but this has happened as recently as 2016.  Yes, the spreads are a bigger issue, but it is not enough for me to discard the value proposition of owning stocks in a year that could see 7.00% GDP growth.  How fearful was the market?  Not as much as one might imagine.  The VIX popped, but it is still in a downtrend.

VIX

Portfolio Approach

This morning, we are closing many positions and opening one technology name.

Today’s Session

Where is the love?

Where is the love?

You said, you'd give to me

As soon as you were free

Will it ever be?

Where is the love?

The spike in bond yields has been arrested for now. Many believe the Fed will work overtime to make sure investors believe they are committed to their objective to keep rates at current level for years to come.  This week is also a major test of the ability of the Fed to jawbone markets without having to take action.

It’s more a matter of trust that there are no limits to trying rather than a question of can Powell & Co slow the rise in bond yields. 

In other words, last week, the stock market was pushing around the Fed by riding the climb in bond yields, and now the question for the Fed is “where is the love?”

We are not talking about an emergency meeting or immediate measures like negative interest rates, but they must whisper sweet nothings, and say this week they are willing to make adjustments.

Today’s Federal Reserve speakers:

• New York’s John Williams at a webinar on culture at 9 a.m.
• Governor Lael Brainard on financial stability at 9:05 a.m.
• Atlanta’s Raphael Bostic, Cleveland’s Loretta Mester & Minneapolis’s Neel Kashkari on housing 2 p.m.

By the way, Australia acted last week with an unplanned announcement of quantitative easing.  The Reserve Bank of Australia bought a single day record of A$4.0 billion ($3.1b usd) worth of bonds, triggering the second biggest decline in their ten-year yield in 19 years.

Australia 10 Year Treasury

The biggest test of the love comes on Thursday when we hear from Jerome Powell.  This momentum will be bigger for investors than even the jobs report the next day.   Meanwhile, the market is buoyed by the approval of Johnson & Johnson’s (JNJ) single shot Covid-19 vaccine and the government’s plan to distribute 100 million doses by the end of June.

It’s a lot of good news.  By the way, this is a great time to start focusing on long term stay at home winners.  I think the reopening trade is getting crowded, and I think there is room for the best names in both categories to rally.  We are not all filing back to work anytime soon.

 

Comments

You are great Charles at bring us all up to speed! Now if we could only keep up with you! Thanks Lorin K on 3/1/2021 10:47:22 AM

Isn't anyone out there worried about inflation? Gas prices? Food prices? Or is it just me.... Leelee on 3/1/2021 2:52:05 PM

Thank you for helping me to stay calm and not sell off at the first hint of bad news, as I've done in the past. Carolyn OConnor on 3/1/2021 3:17:33 PM

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