Hello friends,
Welcome to the March 2021 market outlook. Looking back over the last year, we really have come full circle. It was almost exactly a year ago that we experienced our last “normal.” Thankfully, it looks like we’re turning the page. Hopefully by this time next year, the pandemic will be far behind us. “March comes in like a lion, out like a lamb.” At least that’s how the markets have started. The end of February brought a rout to the indexes, most notably led by tech stocks. That rout was caused by rising rates and the fear of inflation running out of control. As yields pulled back on March 1, the averages had their best day since June. There were also other contributing factors, such as: first of the month rebalancing, the news on Johnson & Johnson’s approved vaccine, talks of future stimulus and decent economic data we received via the Institute for Supply Management and construction spending.
On the virus front, it looks hopeful that we’ve turned the page. Covid-19 hospitalizations in the US have now declined 48 days in a row, down over 61% from the January 6th peak. Texas and Florida are now completely open. Texas has removed their mandatory mask mandate. It will be interesting to see how this plays out and if there are any repercussions. Regardless, it’s certainly nice to see that we’re moving in the right direction. The Biden administration has also said that they have enough vaccine doses to vaccinate all U.S. adults by the end of May. Certainly good news as we look to get our economic engine humming.
On the stimulus front, it certainly looks as if more is on the way. The Senate passed their version of the bill over the weekend. But there are still differences to resolve in the amendment process. Should this bill be finalized, most Americans will see another income boost. In fact, it will be the highest to date at $1,400 per individual and families of 4 receiving $5,600.
Yet it will be interesting to see how the markets progress from here. There are many signs of pockets of the market which are in bubble territory. The boom in Special Purpose Acquisition Companies, or SPACs, continues with over $1 billion a day in new issuance in the first two months of the year. At this pace we’ll surpass last year’s record by the end of March. Sentiment indicators remain at nose bleed levels, and the Fear and Greed index is at a dumbfounding level of greed. Across the world they’ve taken notice too. China’s top banking regulator said he’s “very worried” about bubbles in European and U.S. markets as market rallies are heading in the opposite direction of underlying economies, something we have been talking about for the last few months. Bank of America is also ringing the bell on Wall Street bullishness, saying its measure of sentiment is near a level that has historically been bearish for stocks. We tend to agree, but what we know to be true about bubbles is that they get much larger than anyone envisions. And with more stimulus on the way, the music keeps playing. But, you might want to take a breather and put the Kool-Aid down, as it could be the biggest buy the rumor-sell the news trade in years. On the opposite side, Treasury yields have spiked sharply higher; is this economic progress or fear of inflation. This will be an important debate as one is good for the market and the other may not be, especially high valuation tech stocks. Lastly, much to our chagrin, gold has been the victim of a surprisingly strong dollar and the world’s obsession with Bitcoin. We’ll still stick with the yellow metal which was successful for us last year and we believe will be again before this year is out.
As always, please reach out with any questions.
