Market highlights

March activity resulted in a consecutive monthly improvement for domestic market indices as the Dow Jones Industrial Average and its junior, the S&P 500, both showed significant monthly increases. The NASDAQ and the Russell 2000 had only minor gains this month. 

10-year Treasuries almost doubled in basis points since the start of the year, and reached a 1-year high in the middle of March. Comex gold, West Texas crude and retail gasoline prices all fell off their recent stride. In the Euro area, British, German, and French indices increased substantially but the opposite was true of their Asian counterparts.

 

U.S. Markets

Setting the pace and establishing new highs above the 33,000-point level, the Dow Jones Industrial Average ended March more like a lion than a lamb by scooping up +2,049 points and greeting spring with a monthly close of 32,981, up +7.75 YTD. The little brother S&P 500 almost did as well, up +161 points for a close of 3,972 and a YTD of +5.5. Getting lost in the marshes, the NASDAQ gained +54 points and looked for a way out of the swamp at 13,246 and an unusual YTD of only +2.7%. The Russell 2000 had its least monthly gain since the start of the year, increasing only +19 points with a monthly finish-line total of 2,220 but holding the YTD blue ribbon at +11.1%.

 

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International Markets

Great Britain was gratified with its FTSE increase of +253 points, closing at 6,713 and its first healthy YTD of +4%. The German DAX did twice as well, hitting a YTD of +8.5% by adding +1,290 points to its total of 15,008. Next door in France, the CAC had the same YTD of +8.5%, achieved when it added +516 points and said goodbye to March at 6,067. All three Asian markets faltered, but only the Shanghai Stock Exchange showed a negative YTD of -1% as it lost -68 points with its March 31 close of 3,441. Not doing as badly, the Hang Seng lost -602 points but kept a +4% YTD as its log closed at 28,378. Doing the least poorly of all, Tokyo’s Nikkei Index finished the month with a +5.5 YTD after surrendering -465 points and anticipating good market weather in April with its last-day close of 29,178.

 

China News

The Chinese government has set a 14-year goal for doubling its economy by 2035, requiring an average annual growth of approximately +4.7%. Meanwhile, the European Union is under pressure from China with its sanctions over Xinjiang and its treatment of the Uyghur people. “We slapped them on the fingers and they punched us in the face,” is how one senior German official described the tit-for-tat exchange of sanctions last month between the European Union and China,” reported the German Marshall Fund of the U.S. According to Reuters: “Unlike the United States, the EU has sought to avoid confrontation with Beijing, but a decision to impose the first significant sanctions since an EU arms embargo in 1989 following the Tiananmen Square pro-democracy crackdown indicates a change in posture.”
The EU placed sanctions on Chinese diplomats and China replied with sanctions on EU diplomats and selected institutions.

 

Fixed Income

Meeting for the first time in seven weeks on March 17, the Federal Open Market Committee (FOMC) reflected on an improving economy with the vaccination of millions of Americans, foreshadowing an adjustment to the economic straits the nation has been experiencing in the last 13 months.
Reporting on the minutes of the meeting, CNBC stated “The Federal Reserve announced a major policy shift Thursday, saying that it is willing to allow inflation to run hotter than normal in order to support the labor market and broader economy. In a move that Chairman Jerome Powell called a “robust updating” of Fed policy, the central bank formally agreed to a policy of “average inflation targeting.” That means it will allow inflation to run “moderately” above the Fed’s 2% goal “for some time” following periods when it has run below that objective. As a practical matter, the move means the Fed will be less inclined to hike interest rates when the unemployment rate falls, so long as inflation does not creep up as well. Central bank officials traditionally have believed that low unemployment leads to dangerously higher levels of inflation, and they’ve moved preemptively to head it off. Officials hope that the new approach will change the landscape, raising expectations and allowing inflation to float higher as rates remain low. While Powell did not specify how much higher he’d like to see inflation run, Dallas Fed President Robert Kaplan later in the day told CNBC that he would be content with a range around 2.25%-2.5%. “Right now, to put it in context, we have an unemployment rate that’s well above 10%,” said Kathy Jones, head of fixed income at Charles Schwab. “The chances of seeing significant inflation any time soon are quite slim. With or without this policy change, the Fed was going to be at zero for a couple of years.”
 
10-Year Treasuries: The Financial Times reported the following on March 30: “A key measure of US long-term borrowing costs hit its highest level since the early days of the coronavirus crisis on Tuesday in the penultimate trading session of a brutal quarter for global government bonds. The 10-year Treasury yield rose as much as 0.06 percentage points from Monday’s closing level to touch 1.77 per cent, the highest point since January 2020, according to Bloomberg data, before rebounding to trade at 1.72 per cent. The fresh bout of volatility came as investors weighed optimism over the US’s vaccine rollout and another plan to boost fiscal stimulus. US bond markets have led a global retreat in government debt since January as investors fret that the Federal Reserve will allow the economy to run hot, with huge amounts of government spending combining with monetary stimulus to pump up inflation. A broad Bloomberg Barclays index of debt issued by developed market governments around the world has fallen 5 per cent since the start of the year on a total return basis, snapping four straight quarters of rises.”

 

Commodities

Comex gold ended the first quarter at $1,710 per ounce, down -$60 from the month before and now showing a -9.7% YTD decline. Also reversing, West Texas Intermediate Crude oil was able to retain its price in the $60 – $70 price range, but just barely, ending March at $60.39 per barrel, down -$3.14 but still retaining a +19% YTD. The national average retail price for a gallon of regular gasoline was $2.87, down -10 cents since the end of February but still up +25% YTD.

 

U.S. Economy

GDP: On March 25 the Bureau of Economic Analysis reported the following information on the economy’s Q4 performance: “Real gross domestic product (GDP) increased at an annual rate of 4.3 percent in the fourth quarter of 2020, reflecting both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the COVID-19 pandemic, including new restrictions and closures that took effect in some areas of the United States. The increase was 0.2 percentage point higher than the “second” estimate released in February. In the third quarter, real GDP increased 33.4 percent.”
 

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“The fourth-quarter increase in real GDP reflected increases in exports, business investment, consumer spending, housing investment, and inventory investment that were partly offset by a decrease in government spending. Imports, a subtraction in the calculation of GDP, increased.” 

Job Growth: As reported on March 25 by ABC News, “The number of people seeking unemployment benefits fell sharply last week to 684,000, the fewest since the pandemic erupted a year ago and a sign that the economy is improving. Thursday’s report from the Labor Department showed that jobless claims fell from 781,000 the week before. It is the first time that weekly applications for jobless aid have fallen below 700,000 since mid-March of last year. Before the pandemic tore through the economy, applications had never topped that level. The number of people seeking benefits under a federal program for self-employed and contract workers also dropped, to 241,000, from 284,000 a week earlier. All told, the number of applicants fell below 1 million for the first time since the pandemic. Economists are growing more optimistic that the pace of layoffs, which has been chronically high for a full year, is finally easing. Still, a total of 18.9 million people are continuing to collect jobless benefits, up from 18.2 million in the previous week. Roughly one-third of those recipients are in extended federal aid programs, which means they've been unemployed for at least six months. The economy has been showing signs of emerging from the pandemic crisis with renewed vigor, with spending picking up, manufacturing strengthening and employers adding workers. Hiring increased in February, with 379,000 added jobs — more than double January's total. The economy expanded at a 4.3% annual rate in the final three months of last year, the government estimated Thursday, slightly faster than its previous estimate. That pace is widely expected to accelerate in the coming months, fueled by substantial government rescue aid. Though growth may accelerate this year, hiring often lags behind economic growth as businesses wait to see if rising demand is sustainable. What’s more, roughly 4 million Americans stopped looking for work during the pandemic and aren’t counted in the unemployment rate. Most of them will need to be re-hired for the economic recovery to be fully complete.”

Housing Sales: The National Association of Realtors reported on March 22 that February existing-home sales were down -6.6% even as sales were +9.1% higher than the year before. Existing-home sales had a median price of $313,000, up +15.8% than last year. Housing inventory continued to stay at record lows with only 1.03 million available units, a decrease of -29.5% year-over-year. Also in February, new single-family homes dropped -18.2% to 775,000 units according to the U.S. Census Bureau and the Department of Housing and Urban Development. US News further reported that “The figure was still 8.2% higher than the estimate for February 2020. January's sales number was revised upward to 948,000 from the earlier estimate of 923,000. Prices also rose, with the median sales price reaching $349,400, up from $346,400 in January. The average sales price was $416,000, up from $408,400 a month ago. Inventories, meanwhile, remain tight with 312,000 new homes for sale, an increase from January's 307,000. That represents about a 4.8 month supply.” 

Industrial Production: In their monthly February report, the Federal Reserve noted that total industrial production was down -2.2%, manufacturing output and mining production decreased by -3.1% and -5.4% respectively, while utility output increased +7.4%. “The severe winter weather in the south central region of the country in mid-February accounted for the bulk of the declines in output for the month. Most notably, some petroleum refineries, petrochemical facilities, and plastic resin plants suffered damage from the deep freeze and were offline for the rest of the month. Excluding the effects of the winter weather would have resulted in an index for manufacturing that fell about ½ percent and in an index for mining that rose about ½ percent. Both indexes would have remained below their pre-pandemic (February 2020) levels. At 104.7 percent of its 2012 average, total industrial production in February was 4.2 percent lower than its year-earlier level. Capacity utilization for the industrial sector decreased 1.7 percentage points in February to 73.8 percent, a rate that is 5.8 percentage points below its long-run (1972–2020) average.”

Exports: Exports from the United States increased 1.0 percent from the previous month to USD 191.9 billion in January of 2021, the highest level since February and the eighth straight month of rises, as global demand continued to recover from the coronavirus pandemic shock.” Source: U.S. Census Bureau.”

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Imports: The latest data for imports is January 2021. The Census Bureau made the following information available: “Imports to the United States rose 1.2 percent from the previous month to USD 260.2 billion in January of 2021, the highest level in more than a year. Goods purchases advanced by USD 3.4 billion to USD 221.1 billion, led by imports of consumer goods (USD 3.7 billion) and automotive vehicles, parts, and engines (USD 2.0 billion). Meanwhile, imports of services decreased by USD 0.3 billion to USD 39.0 billion, dragged by transport (USD 0.4 billion) and travel (USD 0.1 billion).”

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Retail Sales: In a report on March 18, Kiplinger made the forecast that retail sales in March and April were likely to grow because of the per-person stimulus checks issued by the federal government. Prognosticating that retail sales were expected to grow +10% this year, it would be a welcome boon compared with the +3% increase that occurred in 2020 when the pandemic hurt sales. “E-commerce sales are expected to grow 13%, down from last year’s 25%, but still a strong performance. In-store sales are expected to rise 7%, up from 2% last year, as pandemic restrictions are relaxed. Motor vehicle sales should rise 16% to 16.8 million units, after a 15% drop last year to 14.4 million units. Restaurant sales will grow strongly, up 16%, after dropping 19% last year. Sit-down dining should especially benefit from the vaccination campaign. Currently, 29% of the nation’s adults have been vaccinated with at least one dose. A 3% drop in sales in February can be blamed both on bad weather and a normal pullback from January’s surge in sales. All categories of retail were affected by the pullback except for groceries.”
 
Producer Price Index: The following information was released by the Bureau of Labor Statistics for February, and indicates that producers are paying more for the goods and services they produce. These increases will be felt by consumers when making retail purchases. “The Producer Price Index for final demand increased 0.5 percent in February, as prices for final demand goods rose 1.4 percent, and the index for final demand services advanced 0.1 percent. The final demand index moved up 2.8 percent for the 12 months ended in February.”
 
Consumer Price Index: The Consumer Price Index is a corollary index that shows the impact producer prices have on the consumer. “The Consumer Price Index for All Urban Consumers increased 0.4 percent in February on a seasonally adjusted basis after rising 0.3 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.”
 
Consumer Sentiment: “The Conference Board Consumer Confidence Index® Surged in March to its highest reading in a year, after a modest increase in February. The Index now stands at 109.7 (1985=100), up from 90.4 in February. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—climbed from 89.6 to 110.0. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—also improved, from 90.9 last month to 109.6 in March. “Consumer Confidence increased to its highest level since the onset of the pandemic in March 2020,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions and their short-term outlook improved significantly, an indication that economic growth is likely to strengthen further in the coming months. Consumers’ renewed optimism boosted their purchasing intentions for homes, autos and several big-ticket items. However, concerns of inflation in the short-term rose, most likely due to rising prices at the pump, and may temper spending intentions in the months ahead.” Consumers’ assessment of current conditions improved significantly in March. The percentage of consumers claiming business conditions are “good” increased from 16.1 percent to 18.5 percent, while the proportion claiming business conditions are “bad” fell from 39.7 percent to 30.5 percent.”

Interesting News

In 1954, economist Armen Alchian was able to figure out what the secret fuel was for the newly developed hydrogen bomb just by looking at the share prices of chemical suppliers on the stock market.

Final Reflections

With the passage of the $1.9 trillion American Rescue Plan Act of 2021 on March 11, coupled with national vaccinations, we may soon see a more solid economic surge as businesses reopen and more opportunities and jobs become available. As this good news of spring extends into summer, we are hopeful that everyone regains a confident balance in their lives with new optimism in their hearts.

 

Joseph Maas

Information contained herein is based on data obtained from sources believed to be reliable, however, such information has not been verified by Carlton Financial Group, LLC d/b/a Carlton Wealth or Synergy Financial Management, LLC. The information provided has been prepared and distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy or an offer of advisory services.

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