By: Ariel Segal
Fed Chair Powell believes “the principal risk to our economy right now really is that the disease would spread again.” Going forward, he sees the economic recovery strengthening thanks to the vaccinations and policy support.
Last week on Friday, President Biden proposed a discretionary budget plan of $1.5 trillion in which nondefense domestic funding is boosted comparatively more than the increase in defense spending. Republicans that have called for 3-5% increase in defense spending are likely to reject Biden’s plan that proposes a 1.7% increase. Biden wishes to increase spending by 20% for the Departments of Commerce, Education, and Health and Human Services, as well as spending for the EPA.
Year-over-Year CPI data is expected to be elevated for the next few months as the base comparison month this time last year coincides with the beginning of the shutting down of economies due to the pandemic. CPI will be shown to have risen dramatically between April 2020 and April 2021 largely due to the fact that it sank 0.7% in April of 2020.
Over 781 million vaccine doses have been given worldwide, with 187 million of them be given in the U.S.
Fixed Income Market:
By Joseph Colleran
Overall market activity picked up last week with a very clear “risk on” theme driving activity. The move was fueled by an extraordinarily strong Jobs report that painted a very positive picture for the future of the US economy. Spread tightening continued with the HY market being the biggest beneficiary. HY bonds were on average, 10 basis points tighter vs USTs, and when coupled with last week’s drop in UST yields, the net effect was a rise in price of more than a point on most HY issues. The first few weeks of Q2 seem very similar to all of Q1, with an ongoing chase for yield and a continuing compression of spreads across all sectors of the bond market.
For the sixth consecutive week we saw strong client demand for structured notes. Rising equity markets continue to trigger more S/Ns being called away from clients leaving them with more investible cash and hence fueling demand for replacement. This is a cycle that will most likely continue as long as US equity indexes trend higher.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $4.5 BLN
IG Bond Funds up $4.1 BLN
HY Bond Funds up $3.8 BLN
Municipal Bond Funds up $1.7 BLN
Domestic Equity Funds down $1.1 BLN
IG Bond Funds up $1.7 BLN
HY Bond Funds up $0.8 BLN
Municipal Bond Funds down $0.6 BLN
By: James Zurovchak
All three major indices had solid gains last week with NASDAQ (+3.1%) continuing to recover and S&P (+2.8%) and DJI (+2.4%) closing at new all-time highs. The move was broad based with 10 out of 11 GICS sectors finishing up on the week. Information Technology (+4.6%), Consumer Discretionary (+3.9%) and Financials (+2.0%) lead the way higher, while Energy (-4.2%), Real Estate (+0.4%) and Materials (+0.7%) were the underperformers. Growth again outperformed Value +4.1% vs +1.3%. In the week ahead, the continued economic recovery will be the focus with an eye turned toward repercussions if Biden’s infrastructure is passed.
By Anthony Minardo
The question still remains, has the weak US dollar reversed, or was this a classic short squeeze to alleviate the pressure of the massive short dollar positions in the market. The US dollar was the best performing currency in the month of March as US treasury yields traded to a high of 1.77. Currently rates have stabilized and the10yr treasury has drifted towards 1.65. As a result, the dollar rally has taken a pause and presently trading lower. Comments by Fed’s Chairman Powell continue to reiterate that interest rates will remain at these levels for the foreseeable future and is willing to let the economy “run hot” even if we surpass the 2% inflation target.
By Brian Stigliano
Saving/Investing for Different Goals
With the S&P 500 up over 70 percent since the COVID related bottom in March 2020, now may be a good time to review how much risk is present in your portfolio. When working with clients to determine how much risk they should be taking, I have always been fond of the “bucket” approach. The amount of risk depends on for what and when the particular “bucket” of money is going to be used.
In general, the more risk that an investment has, the greater the return should be. And the closer you are to needing to use the money, the less time there is to recover from an investment loss. Therefore, money that is going to be used in the near future should be as riskless as possible (i.e. – FDIC insured bank account) while money that will be used well into the future (think ten years or more) should have more risk (i.e. – retirement accounts invested in stocks/stock funds).
It’s also important to remember to adjust the risk of a portfolio as you get closer to the goal. For example, if retirement is now only three years away, it would not be prudent to be in a highly risky portfolio should the market crash. Working with a financial planner can help you ensure that each “bucket” has the appropriate level of risk.
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