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Last week, the stock market sold off from its prior week highs, as interest rates continued to rise and inflation concerns continued. Mortgage rates started to rise, and we got an update on the housing market and labor market. Congress also held hearings on GameStop, and the House put forward its language for the $1.9 trillion stimulus bill. This weekly market report covers details on all of the above, and you can find all the previous Monday Market Update’s here.


Monday Weekly Market Report for 02.22.2021

The S&P 500 sold off last week as inflation expectations increased and longer-term interest rates continued to tick up. Both 10-year and 30-year treasury bond yields are up 0.42% and 0.50% since the start of the year, a 50% and 30% increase in yield from their historic all-time low levels.

How does this impact you? It increases the interest rates you pay. Already, we are seeing mortgage rates start to increase, although again, from historic all-time lows.

Where are we seeing inflation expectations? A major inflation indicator is the 10 Year Treasury to TIPS spread. Ten-year TIPS yields are currently negative, meaning, current interest rates are lower than expected inflation. The Treasury spread to TIPS closed the week at 2.21%, its highest level in 6 years. It typically predicts inflation CPI growth about a quarter ahead of time, and at current levels, estimates inflation of about 2% for the coming quarter (vs. latest level for January of 1.4%).

Last Week in the Markets

After hitting new highs for two consecutive weeks, the stock market sold off last week while long-term treasuries continue to increase in yield (and decrease in price). Commodities also continue to rally, after a decade of decline, spurred on by inflation concerns, the overall economic recovery and hopes that the Biden administration will increase fiscal spending on infrastructure.

In last week’s stock market sell-off, we saw outperformance and gains in Small Caps and Value stocks, a continued reversal from their underperformance last year, as investors seek higher returns and dividend yields amid inflation concerns.

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 year to date.

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 has gained 0.50%, a 30% increase in yield since the start of the year. 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 is now up more than 90% year to date. Recall also that now public companies, like Tesla, hold sizeable Bitcoin positions on their balance sheets. Other companies are rumored to follow suit. These positions will add to earnings growth (and volatility), going forward. Research analysts estimate Tesla has already made unrealized gains of $1 billion on its Bitcoin position – compares that to the company’s $690 million in total earnings for all of 2020, the first year it has generated any profit.

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.

GameStop Update

For those following the GameStop saga (for a refresher of what happened, see the 2-1-2021 week’s market recap), here’s the latest: this week, Congress began holding hearings to determine exactly what happened last month. They heard testimony from the CEOs of Robinhood, Citadel, and Melvin Capital, as well as Keith Gill, aka Roaring Kitty, who began his testimony by declaring “I am not a cat… nor am I an institutional investor.”

The Economic Weekly Market Recap

This week’s major economic releases included Weekly Jobless Claims, Advanced Retail Sales, and updates on the real estate market for January.

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 2/13 increased to 861,000 from the previous week’s level of 793,000. This is the second consecutive week of rising claims.

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 1/30 (this comes at a longer lag) is far greater – 18.3 million, a decline of 1.3 million from the week prior, all under the expanded and extended pandemic assistance programs.

This remains higher than expanded benefits were at the highest point of the Great Recession. Some of you asked me how big an impact fraudulent claims are having on this data. There are some data points from some states, but nothing reported consistently.

Anecdotally, I have read it is higher than normal (but so is unemployment overall). I also heard from a follower whose husband had their social security number used for a fraudulent claim. When the state contacted his employer to verify the claim, his employer contacted him – which is how he found out. High volumes of claims make fraud more likely to go undetected. Recall that the highest weekly claims ever before 2020 was 695,000 at the peak of the Great Recession. We have now seen more claims than that EVERY WEEK for the last year. State’s aren’t equipped to adequately process that many claims. It’s why it takes longer to receive benefits, and likely longer to catch fraudulent claims as well, but it does seem like fraud when detected is corrected.

Advanced Retail Sales

Advanced Retail Sales were up +5.3% in January (seasonally adjusted and annualized), a strong increase after two consecutive months of decline in November and December. This was also with the benefit of the second round of stimulus checks many households received in January.

Relative to December, retail sales grew in all major categories for the month, with Restaurants experiencing the strongest increase, +6.9%.

However, Restaurants sales levels are still down double-digits from pre-pandemic levels.

Existing Home Sales

The National Association of Realtors reported Existing Homes Sales data for January this week. Number of sales continues to increase – +0.6% in January vs. December. Prices also continue to remain elevated in the face of extremely limited inventory. They report this as months supply, or how many listings there are relative to units sold. There is currently just 2.1 months supply listed – a more normal market is more like 6 months supply.

For January, 367,000 homes were sold (6.7 million seasonally adjusted annual rate) at a median price of $303,900, an increase of 14.1% from the prior year. Double-digit price increases are being seen in every region of the country, with the West ($461,800 median price) and Northeast ($361,400 median price) experiencing the highest price increases.

Strong price increases are being fueled by two major factors: 1) a severe housing inventory shortage and 2) low mortgage rates. Existing homeowners are reticent to list their homes given their own ability to find a new home. At the lower end of the market, you also have many homeowners in forbearance or who may have lost jobs or income, which also keeps them in their home as they wouldn’t be approved for a new mortgage or be able to rent somewhere else.

The Biden Administration just extended forbearance eligibility for up to an additional 6 months, as more than 50% of mortgages in forbearance were scheduled to resume payment between March and June. More details on this below in the Political Weekly Market Report. An estimated 2.7 million homeowners are currently in forbearance, representing 5% of all homeowners.

Low mortgage rates fuel prices as it makes a more expensive home more affordable given lower monthly payments. You can afford a more expensive home at rates below 3%, than you could with rates above 4%. We are starting to see rates bounce off their all-time historic lows, however, as long-term Treasury rates increase.

Calling All Realtors & Mortgage Experts…
I will be hosting a series of LIVE Q&A’s this Spring and would love for you to share your expertise and what you are seeing in your local markets.

Sessions:

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The Political Weekly Market Report

There were three major political stories from last week relevant to family finances:

  • President Biden’s Town Hall and Student Loan Forgiveness comments
  • Biden Administration Extension of Forbearance & Foreclosure/Eviction Moratoriums
  • House published language for $1.9 trillion stimulus bill late Friday evening

Student Loan Forgiveness Debate

Tuesday evening, President Biden hosted a televised Town Hall to promote his $1.9 trillion stimulus plan. But many of the headlines following it focused instead on his response to a question about student loan forgiveness:

“We should be eliminating interest on the debts that are accumulating, number one. And number two, I’m prepared to write off the $10,000 debt but not 50.”

President Joe Biden, Tuesday, February 16, 2021

Throughout his campaign, Biden called for student loan forgiveness up to $10,000, but many in his party have been calling for far more – $50,000. He went on to say that he doesn’t think the President has the authority to forgive $50,000 by Executive Order.

He also went on to suggest that forgiving $50,000 would disproportionately help those who attend Ivy League schools, and that greater levels of forgiveness “depends on whether or not you go to a private university or public university.” Many argue this comment shows the President is ill-informed about the distribution of student loan debt and who carries it.

Forbearance Extension

Also on Tuesday, the White House announced an extension of forbearance and foreclosure moratoriums for homeowners. Through Federal agencies which provide federal mortgage guarantees, the Department of Housing and Urban Development, Department of Veterans Affairs, and Department of Agriculture, the following has been instituted or extended:

  • Extend the foreclosure moratorium for homeowners through June 30, 2021;
  • Extend the mortgage payment forbearance enrollment window until June 30, 2021 for borrowers who wish to request forbearance;
  • Provide up to six months of additional mortgage payment forbearance, in three-month increments, for borrowers who entered forbearance on or before June 30, 2020.

In addition, the Federal Housing Finance Agency, which oversees Freddie Mac and Fannie Mae, extended forbearance by three months for borrowers coming to the end of their forbearance period. These collective actions apply to more than 70% of all mortgages outstanding.

House Democrats Release $1.9 Trillion Stimulus Bill

Friday evening, House Democrats released the 500+ pages of the $1.9 trillion stimulus bill they plan to vote on by the end of this week. It will then enter the budget reconciliation vote, already approved by the Senate, allowing it to pass with just a simple majority. However, there are already some objections to the contents by more moderate Democrat senators, including Joe Manchin, over the $15 minimum wage inclusion.

What else is in $1.9 trillion bill? Some of the major spending components are outlined below – but is not exhaustive…

For Individuals – $923 billion

  • $422 billion – $1,400 per person stimulus checks
  • $246 billion – extend unemployment through August 29 with $400/week supplement
  • $143 billion – expand Child Tax Credit, Child Care Tax Credit and Earned Income Tax Credit for one year
  • $45 billion – expand Affordable Care Act subsidies for 2 years

For State & Local Governments – $350 billion

  • $195 billion to state governments
  • $155 billion to local governments, territories and tribes

Education & Labor – $290 billion

  • $129 billion for K-12 education
  • $40 billion for colleges and universities
  • $40 billion for child care and child care providers, Head Start
  • $54 billion to increase the federal minimum wage to $15/hour by 2025

Vaccines & Testing – $122 billion

  • $50 billion for testing and contact tracing
  • $19 billion for public health workforce and investments
  • $16 billion for vaccine distribution, “confidence” (ie PR campaign), and supply chains

Transportation & Infrastructure – $90 billion

  • $47 billion funding Disaster Relief Fund and covering funeral expenses related to COVID
  • $28 billion to transit agencies
  • $11 billion to airports and aviation manufacturers
  • $3 billion communities under economic stress
  • $2 billion grants to Amtrak

Financial Services – $71 billion

  • $30 billion emergency rental assistance and assiste homeless
  • $12 billion grants for airlines and contractors to freeze airline layoffs through September
  • $10 billion Defense Production Act to buy and distribute medical supplies
  • $10 billion provide mortgage payment assistance

Small Business – $50 billion

  • $25 billion grants for restaurants and bars that lost revenue due to pandemic
  • $15 billion EIDL Advance grants of $10,000 per business
  • $7 billion more PPP Loans and expand eligibility

Veterans’ Affairs – $17 billion

Agriculture – $16 billion

  • $6 billion increase nutrition assistance (I.e. food stamps)

Minimum Wage Language

In addition to these spending programs, it also includes increasing the federal minimum wage to $15 by 2025, beginning with an increase to $9.50 this year. (See page 45 of bill here.)It also has a built-in inflation escalation provision for raising the minimum wage annually thereafter. This is likely the most contentious portion of the bill given the recent finding of the Congressional Budget Office as to its impact on unemployment (1.4 million fewer jobs).

You can learn more about the economic impact of the minimum wage from my previous LIVE Q&A and IG highlights.

Child Tax Credit Language

The Child Tax Credit will increase by $1,000 to $3,000, and $3,600 for children under 6. This applies for joint filers up to $150,000 and $112,500 for head of households, reduced by $50 for each $1,000 by which your income exceeds the amount listed above. (See page 475 of bill here).

Stimulus Checks Language

Stimulus checks, known as “Recovery Rebates” to individuals, will be $1,400 for all indviduals, including dependents. You are eligbile so long as your adjusted gross income is less than $75,000 (phases out until $100,000 at which point you receive nothing) for single filers, $150,000 (phases out until $200,000 at which point you receive nothing) for married filers, and $112,500 (phases out until $150,000) for heads of household filers. (See page 454 of bill here for all details).

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. We did see vaccine rollout slow down slightly last week given the winter storm that impacted a significant part of the country, but expect those distributions to catch up this week.

For the fifth consecutive week, 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 four weeks). We also now see a decline in daily deaths as well for the last two weeks. 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 5.6% increase in vaccines distributed and a 16.2% increase in vaccines administered last week relative to the week prior, slower growth than recent weeks, but again due to the winter storm. So far, over 17.6 million people have completed their double dose regimen, representing 5.4% 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.

In other vaccine progress news, the FDA will meet this Friday, 2/26 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. Coming up this week? Fed Chairman Jerome Powell gives his Semiannual Monetary Policy Report to the Congress on Tuesday and Wednesday. Look for them to question him on short-term interest rates, inflation and stimulus views.

We will also get New Home Starts and Sales data on Wednesday and Personal Income and Consumer Expenditures data on Friday, including an update on the PCE Price Index, an alternative to CPI with a more dynamic “basket of goods.”

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.

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About Meghan

Meghan spent nearly a decade as a Financial Analyst, before spending the last 7+ as a SAHM to three little ones. She shares simple money tips for moms to help your family reach your financial goals by building a financial plan you can LIVE with! You can learn more about her background in finance, catch her daily on Instagram and Facebook, and her weekly live discussions in her community for Family Finance Moms.

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