Key Takeaways:
- Congress could dominate headlines amid new stimulus drive
- Rising yields have clipped the booming Tech market, but cyclicals getting a lift
- March Fed meeting another chance for Powell and company to assess inflation picture
After an icy February, March begins soon with hints of spring in the air. And hints of stimulus.
Heading into the new month, focus turns to Capitol Hill, where Congress is expected to deliver another $1.9 trillion in stimulus (give or take a hundred billion) before the first regular season baseball batter steps to the plate. After December’s stimulus checks apparently contributed to retail sales surging more than 5% in January, there’s optimism that if a small stimulus helped the economy, maybe a bigger stimulus will help more.
Besides watching the political sausage get made, investors likely will have their eyes on the Fed as it prepares for a mid-month meeting. There’s also vaccine progress, a bunch of company investor days, and even a smattering of earnings despite the main season finishing in February. Key company results to watch in March include Target
As always, keep an eye on data. Especially employment. The last few Labor Department payroll reports have been nothing to write home about. Same with weekly new jobless claims. The Fed says the recent pandemic surge weighed on job creation. The question is whether recent declines in cases might put job growth back on track in the next month or two. Watch for the March 1 ISM manufacturing report, too, to see if the surge in that sector of the economy continued in February.
The Pattern So Far: No Pattern
With the first two months of 2021 nearly behind us, there really hasn’t been a firm pattern established in the stock market. Tech rallied then wobbled, with Apple
Still, fixed income and commodities continue to point toward economic resurgence, and so does strength in sectors like Energy that got beaten down most of last year. Virus cases around the world began falling in February, vaccinations climbed, and investors kept looking for new places beyond the highly-valued stock market to put their money. Bitcoin continues to climb, hitting new highs above $52,000 in late February.
At the end of the day, rates are still historically low and there’s a lot of money floating around looking for a home. As much as $5 trillion sits in money market funds, mainly gathering dust, according to one recent media report.
Speaking of rates, one of February’s themes that might spill over into March is some sector rotation as higher bond yields weigh on the big Tech stocks that carried things through the recent rally. Strong readings on January retail sales, industrial production, and the producer price index—all released recently—gave the yield rally another lift, and higher rates are often considered a weight on Tech and other growth stocks. Remember back in late 2018 how the Tech market took a pounding after yields reached multi-year highs.
Why Tech? Because the expected cash flows of companies are considered less valuable when yields are higher. That poses a threat to many Tech stocks because much of their earnings are expected to come further in the future.
Read More: Fed In Focus With New Fiscal Stimulus Helping Drive Up Yields