Spring Into Action

Spring into action.  Stocks vaulted to new record highs on stimulus hopes and easing treasury yields.  Jobs data blew past estimates on Friday, though the market was closed, futures gave a nod of approval springing further yet.


Rebirth. Why not?  Easter, after all, is a holiday that symbolizes rebirth for religious and non-religious alike.  Those birds in my yard that I have been writing about quite a bit lately, well they have turned up their game in recent days, producing quite a commotion well before the sun even breaches the horizon. Blooms are starting to bloom and green shoots are beginning to emerge from places that were once brown and drab just weeks ago.  The markets seem to have joined in with the celebration this year as well, or perhaps it is just happenstance.  Hmm.  Recently, I find myself trying to recreate in my mind, a timeline of events that occurred around this very time last year.  I will just sum it up as a time of great chaos.  I wasn’t writing about birds singing.  All I seemed to see when I looked out my office window, having just entered a lockdown, was crows and the remnants of Winter.  The S&P500 had already entered a self-imposed lockdown, off by some -21% from the pre-pandemic, all-time high it hit on February 19th.  Sure we were already up +19 from March’s lows, but the situation for companies and their longer term outlooks were at that point, as we say in the business, still fluid.  The S&P had fallen nearly -34% from high to low in just 23 days!  You know if you have been reading my notes, that economies and companies don’t typically operate on a timescale of days and weeks, but rather months and quarters.  We also learned in the several years prior, that the Government seemed to operate on a quadrennial timescale.  That is a fancy word for: every four years (you can look that up if you don’t trust me).  Because of the markets quick reaction to the health calamity, it was unclear how long it would take for corporate earnings or the greater economy to catch up.  Would it be better or worse than the markets’ predictions?  More importantly, when would the effects kick in and how long would they last? These were the questions we faced at that time.  We had no solid answers as we had not witnessed anything like this in the past.  I often use the quote (attributed to many historical figures) “history doesn’t repeat itself, but it rhymes.”  It is a favorite of Wall Street’s as we often look at how a market reacted to certain events in the past in order to formulate a strategy today.  Foremost, I was confident that markets would ultimately recover but was unsure when, which is what kept me up at night.  I have lived through a few similar stock market routs, most recently the Global Financial Crisis.  That fall was a more orderly downswing that spanned roughly 350 days, costing the S&P around -57%.  You might recall, the country was in a recession, the financial system imploded, and the housing market bubble had burst epically.  I recall thinking similarly to today, that I knew the markets would eventually recover, just not when. Well, thankfully, they did. However, it took the S&P500 around 5 1/2 years to make another new high.  If I applied that experience to last year’s market, that would have taken us to Fall 2025 to get back above water.  I found myself concerned over investors who were retired or soon-to-be retired, that relied on their portfolios as a source of income.  I knew that many of those portfolios were more risky than they had been in a generation.  With bond yields so low, a booming stock market, and readily available financial news, many senior investors had accumulated significant wealth but ended up with highly volatile, equity-only portfolios, which were highly concentrated in a few stocks or sectors.  Volatility did not seem to faze many of them, because markets had always appeared to correct themselves in the years prior.  By the way, volatility is ok and, in fact, healthy… unless the market finds itself on a downswing when the investor needs the money most critically.  I have witnessed this dilemma time and again in my career which is why I am such a big proponent of diversification. Diversification can come in many forms, which I won’t cover here today, but there is something for everyone, and all should partake in one way or another.  Turning back to the flock of singing wingers in my yard in this season of rebirth.  Thankfully, for investors, the stock markets have staged a far quicker recovery than in the Great Recession.  On Friday, while the markets were closed, we learned from the Bureau of Labor Statistics, that 916k new non-farm jobs were created last month bringing the Unemployment Rate to 6.0%.  The new jobs number far exceeded the hopes of economists, who were already expecting an uptick from last month’s reported 465k new jobs. Just a day earlier, the Institute For Supply Management released its closely-watch Manufacturing PMI, which came in above estimates at 64.7.  That is the highest level for manufacturing activity since 1984.  The economy is coming back to life, a rebirth if you like.  The stock market has recovered and is making new records in anticipation of further recovery.  Many investors who were struggling last year at this time have not only recovered, but also profited a great deal.  Such a rapid recovery is also uncharted waters for us.  That said, this would be a great time to take this second chance to review your portfolio and to be thoughtful about its contents and whether or not it is diversified.


Stocks rose last Thursday in response to Biden’s proposed infrastructure spending.  While infrastructure stocks gained, they were eclipsed by growth stocks, which rallied in response to lower bond yields.  The S&P500 climbed by +1.18%, the Dow Jones Industrial Average rose by +0.52%, the Russell 2000 Index advanced by +1.50%, and the Nasdaq Composite Index added +1.76%.  Bonds pulled back and 10-year treasury yields fell by -8 basis points to 1.66%.  While stock markets were closed on Friday, equity futures rose and bond yields climbed in response to the jobs number released during the Holiday.


– Markit Services PMI (March) is expected to come in at 60.2, slightly higher than flash estimates.

– ISM Services Index (March) may have risen to 59.0 from 55.3.

– Factory Orders (Feb) are expected to have declined by -0.5% compared to January’s +2.6% increase.

– Durable Goods Orders (Feb) are expected to come in at -1.1% in line with earlier estimates.

– For the balance of the week we will get JOLTS Job Openings, Producer Price Index, and a highly anticipated release of the last FOMC meeting minutes. Please refer to the attached economic calendar for details.


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