Last week, the stock market hit new highs, and long-term bonds reached their highest yields in nearly a year on the backs of solid corporate earnings, inflation concerns and hopes for more stimulus. I’ve also got a couple new national survey data sources to share this week – covering stats on schools, stimulus and housing. This Monday market recap covers more details on all of the above, and you can find all the previous Monday Market Update’s here.
Monday Market Recap 02.15.2021
The S&P 500 closed at a new all-time high on Friday, for the second week in a row. Strong earnings reports and the likelihood of more stimulus, outweighed continued weakness in the labor market and concerns over inflation.
The best news though… all the virus data points are solidly heading in the right direction, with significant declines in new cases, hospitalizations, and deaths following the holiday season spikes and as the vaccine rollout continues.
Last Week in the Markets
The stock market hit a new all-time high Friday, for the second week in a row, while long-term treasuries continue to increase in yield (and decrease in price). Commodities are also on a rally, after a decade of decline, spurred on by a weak dollar, cheap capital, the overall economic recovery and hopes that the Biden administration will increase fiscal spending on infrastructure.
The stock market rally continues as companies broadly posted good earnings growth and outlooks, as well as on the liklihood of additional fiscal stimulus, which is expected to be passed by the end of the month. Tech and small caps continue to outperform the broader market, as people seek higher sources of returns.
In the bond market, you can see a similar outperformance of higher risk securities, as investors seek higher sources of return. High Yield bonds, with lower credit and higher interest rates, have significantly outperformed Investment Grade and Treasury bonds.
Market expectations for future inflation, however, are at their highest point in six years, fueling the rise in long-term bond yields (and decline in long-term bond prices). The 30-year Treasury bond yield surpassed 2% for the first time since pre-pandemic. For more on the inverse relationship between bond yields and bond prices, see 10+ Different Types of Investments under How Bonds Work.
Concerns over inflation and the weakening dollar are also fueling the rise in more speculative investments, like commodities and cryptocurrencies, like Bitcoin. Bitcoin had a mid-week boost last week, as Tesla announced in their Annual Report they now own $1.5 billion of the cryptocurrency and will begin accepting it for payment. The Bitcoin position earned them more in the last week as Bitcoin prices increased than Tesla profited making cars in all of Q4 2020. More major companies are rumored to follow suit, adding more credibility, as well as demand, to Bitcoin.
This also has the potential to complicate investment exposure. If you aren’t interested in holding cryptocurrency, but you hold an S&P 500 index fund, you now do whether you want to or not – because Tesla does. And if more companies follow suit, your exposure could increase. Also, the volatility of Bitcoin will now extend to both the earnings and share prices of stocks with Bitcoin exposure.
Now, it’s always good to frame short-term performance against the longer term for perspective. Note the recent reversal of fortune between LT bonds and commodities, all primarily driven by rising inflation concerns and increased fiscal spending.
For those following the GameStop saga the 2-1-2021 week’s market recap, here’s the latest: the Justice Department is now involved. This makes there a potential for criminal charges, as opposed to just civil charges, which would result in fines, from investigations by the SEC and CFTC, which are also underway. The Justice Department’s fraud division, as well as the San Francisco US attorney’s office, have sought information from both social media companies and brokers surrounding the trading activity with GameStop. They have also issued subpoenas for information to brokers, including Robinhood.
The Economic Weekly Market Recap
This week’s major economic releases included Weekly Jobless Claims, as well as the Consumer Price Index for January, the major indicator of consumer prices and a proxy for inflation.
I will also cover two new sources of data – one from the US Census Bureau and the other from a USC survey – both of which have been conducting regular surveys of households since March to gain insights into how people feel about things like school, how they are spending stimulus checks (or not), and other pandemic-related financial concerns.
Weekly Jobless Claims
I continue to closely watch the labor market for signs of improvement, as it has experienced the most negative impact in the economy, and its recovery is most critical to a full economic recovery for everyone. On Thursday, weekly jobless claims for the week ending 2/6 increased to 793,000 from the previous week’s initially reported level of 779,000 (though the week prior was also revised upward to 812,000). Most had expected a continued decline, so this was a disappointing report.
Total insured unemployment, under regular state programs, is down to 4.5 million people, an insured unemployment rate of 3.2%. However, this remains a fraction of those covered under the expanded pandemic and emergency programs at both the state and federal level.
Total insured unemployment under these programs for the week ending 1/23 (this comes at a longer lag) is far greater – 20.4 million, an increase of 2.6 million from the week prior, all under the expanded and extended pandemic assistance programs.
This is higher than expanded benefits were at the highest point of the Great Recession.
Consumer Price Index
The Consumer Price Index (CPI) measures the change in prices paid by urban consumers for a market basket of consumer goods and services. Indexes are also available for specific metro areas as well. It is a proxy for inflation, or an increase in prices paid by consumers.
In January, the CPI was up 0.3% for the month on a seasonally adjusted basis, and 1.4% over the last year.
The rise in CPI over the last year is largely driven by a 3.8% increase in food prices, especially in meat and dairy, offset by a decline in energy prices. However, energy prices are starting to rise again, leading many to believe we will see higher inflation in the months to come.
Cost of Lost Education & Houshold Impacts
Last week, in my stories, I shared results from a UPenn study that estimates that every month of continued school closures (remote learning) cost current students between $12,000 and $15,000 in future earnings due to lower educational quality.
This led to a survey of all of you on the status of schools for your kids, followed by a further deep-dive by me into data around this topic.
What I discovered are two different data sources – from the US Census Bureau’s Household Pulse Survey and USC’s Understanding America Study Education Project – who have both been surveying households regularly since the start of the pandemic on a multitude of factors. Their results give a range of insights into how the pandemic is impacting families financially, how education for kids has been impacted, as well as parental preferences on how they feel about school’s reopening in their area given virus status and school’s mitigation actions.
I will highlight the findings at a national summary level, and how they vary by income and race below, but you should know that the US Census Bureau data is broken down by state and even for the 50 major metro areas, as well as by educational attainment and a host of other factors as well. The USC data is also broken down by a range of factors and specifically for California as well. These surveys (and results) are also updated on a weekly (Census) or bi-weekly (USC) basis.
Educational Impacts & School Status
The US Census Bureau Household Pulse Survey asks the following questions around education:
- At any time during the 2020-2021 school year, will any children in this household be enrolled in a public school, enrolled in a private school, or educated in a homeschool setting in Kindergarten through 12th grade or grade equivalent?
- During the last 7 days, about how much time did the student(s) typically spend on all learning activities relative to a school day before the coronavirus pandemic?
- During the last 7 days, on how many days did the student(s) have live contact with their teachers in person, by phone, or by video?
Overall, nearly half of households reported children are spending less time on learning activities this year, though there wasn’t stark variation in responses by income or race. There was, however, a greater likelihood of more days of “live teacher contact” for higher income households, as well as for Black and Hispanic households. It should be noted, however, that “live” teacher contact includes virtual or phone contact as well.
I also found the stats on homeschooling interesting, with lower income households, as well as Black and Hispanic households, more likely to homeschool.
The USC survey actually asked specifically about how educational instruction is being delivered, as well as parental preferences for educational instruction:
- How is [your child] currently attending school?
- Given the state of the COVID-19 pandemic in your area and your school’s safety protocols, how would you prefer [your child] to attend school right now?
Based on the USC survey results, higher income and white households are more likely to be in school in person. However, that is also the preference of parents in these households.
What I have heard from many of you anecdotally, both from parents of color as well as staff in various districts, is that lower-income and Black and Hispanic families are more likely to live in multi-generation households, and/or rely on older generations for caregiving. They are more concerned about protecting elderly family members than being in school in person, and this also provides them with support for remote learning that higher income households with dual working parents may not have.
There are also concerns about overcrowding and lack of funding to institute necessary safety protocols, as well as overall higher levels of spread within these communities.
One of the concerns around stimulus payments is will they have the intended effect. The intention is you put money in peoples’ hands so they they will spend it, and that spending will stimulate and multiply its effect on the overall economy. Businesses will get revenue, hire more, etc.
However, as I mentioned in my Live Q&A on Friday with regards to past recessions and stimulus checks, not as many people actually spend them as you would think. People who are worried about losing their job or already have lost income, are saving them or using it to pay bills. And it looks like the same is true today, as well…
- QUESTION: In the last 7 days, if you or anyone in your household received a “stimulus payment,” that is a coronavirus related Economic Impact Payment from the Federal Government, did you…
- QUESTION: What did you and your household mostly spend the most recent “stimulus payment” on? Select all that apply.
For those that did receive stimulus checks, what they do spend it on is necessities: food, utilities, debt, rent/mortgage. I imagine rent and mortgage would be even higher if it weren’t for current forbearance and eviction moratoriums.
One last area I wanted to highlight from the Census Bureau’s Household Pulse Survey. There are a series of questions on mortgage and rent, including whether or not you are current on your payments.
The Political Weekly Market Recap
All of the political news last week was glued to the impeachment trial. I didn’t speak to it because I truly try to keep political updates to those issues and policies that impact your family finances – and this had zero bearings on that, other than delaying progress on stimulus legislation for a week. The impeachment trial officially concluded on Saturday, and the Senate voted 57-43, resulting in an acquittal (a 2/3s majority, or 67 votes, is required to impeach).
Congress now plans to recess for a week, and resume on February 22nd, when they will take up passing the next round of stimulus. Most anticipate it to be passed by the end of the month, with stimulus checks getting issued in March, at the earliest. Watch the news next week for more specifics on the legislation and implementation details.
One other area of focus is schools re-opening. The Biden administration had put forth a promise to have 50% of schools re-opened in person within the first 100 days. But this week, his staff began walking back that promise – defining “re-opened” as at least 1 day a week of in-person instruction.
On Friday, the CDC released an updated handbook and guidelines for reopening schools. While the CDC is not mandating schools re-open, their guidance does indicate that “K-12 schools should be the last settings to close after all other mitigation measures in the community have been employed, and the first to reopen when they can do so safely.” Teachers and teacher unions seem largely in support of the “updated” guidance. These are the identical mitigating actions we undertook in our state and town to reopen last Fall, including:
- Universal and correct use of masks
- Physical distancing, with cohorting or podding recommended
- Handwashing and respiratory etiquette
- Cleaning and maintaining healthy facilities (ventilation)
- Contact tracing
Layering these mitigating actions, along with using local community transmission as a guide for overall risk in the community (also advised in CDC guidance), our schools have been open largely in person since the start of the school year.
The Virus Update
While the vaccine continues to be distributed and rolled out nationwide, we still have many months ahead of us of continued precautions… but the trends are solidly headed in the right direction.
For the fourth week in a row, we saw all numbers head in the right direction. New cases and hospitalizations are all down significantly, with new cases, in particular, seeing significant declines (down double-digits in each of the last three weeks). We also now see a decline in daily deaths as well. Declines are attributed to a combination of subsiding from the post-holiday spike, as well as the rollout of the vaccine, which began in mid-December.
We also continue to see progress in the vaccine rollout. Bloomberg is tracking the rollout and administration state by state. We saw a 17.7% increase in vaccines distributed and a 28.4% increase in vaccines administered last week relative to the week prior. So far, over 13.7 million people have completed their double dose regimen, representing 4.2% of the population. Many experts believe we need to get to 65-80% vaccinated to achieve herd immunity, which would allow life to resume with some level of normalcy.
The US Census Bureau Household Pulse Survey also gives some insights into people’s willingness to be vaccinated, as well as who has begun receiving vaccines already. The more educated and higher income your household, you are more likely to have already received a vaccine and also more likely to be willing to receive it.
Of concern is the significantly higher percentage of Black households who don’t plan to be vaccinated. The survey also asks reasons for not receiving or planning to receive the vaccine. Black respondents have a higher level of distrust for the COVID-19 vaccine, and more than half are concerned about side effects and plan to “wait and see if it is safe.” Our country’s history of medical experimentation on minority communities still carries an impact on sentiments today.
In other vaccine progress news, the FDA will meet on February 26th to review the single-dose Johnson & Johnson vaccine. If approved, this would add a third vaccine to those available in the United States, and as a single-dose regimen with less stringent storage requirements, could significantly accelerate distribution.
The Week Ahead
Look for updates on Initial Jobless Claims and 30-Year Mortgage Rates every week. The biggest economic news coming up this week is the release of Advanced Retail Sales numbers for January on Wednesday (2/17). This gives us some indication of consumer spending and the impact on businesses.
For More Information…
For a more detailed history of all the metics shared, check out When Will the Economy Recover – updated monthly, which gives a more detailed overview of market and economic indicators, as well as their historical context. I’ll be working on updating it through the end of January this week.
Questions? Feel free to leave them in the comments below, or in the weekly question box in my Instagram stories.