April 21, 2021
- Despite an increase in volatility, various equity indices hit new all-time highs spurred by better than expected economic and corporate earnings reports and a jump in business and consumer optimism due to the accelerating COVID-19 vaccine rollout and additional fiscal stimulus. The rotation into more economically sensitive assets such as small-capitalization (cap) and cyclical stocks that began in 2020 continued leading value indices to outperform growth indices and small-cap to outperform large-cap.
- Longer-term U.S. Treasury bond yields moved higher (as prices declined) and were back to pre-pandemic levels on concerns that inflation will accelerate due to an overheating economy combined with supply constraints and more stimulus coming. Removal of the temporary reserve exemptions for banks in the U.S. also pushed yields up.
- Oil prices rose to $66 per barrel on expectations for improving demand and still limited production. Strong demand drove other commodity prices up too. Copper hit a 10-year high and lumber futures hit an all-time high. The price of precious metals dropped as the demand for safe haven assets declined.
Overview of the Economy
- Manufacturing continued to rebound globally. Employment in the U.S. is growing and the number of job openings is back to pre-pandemic levels. New COVID related shutdowns were enacted in many countries temporarily slowing their recoveries.
- A $1.9 trillion bill was signed in the U.S. providing direct payments to citizens, states, and local governments. The European Central Bank (ECB) accelerated its bond-buying program.
- China began to phase out pandemic related stimulus but later said policy normalization will be gradual.