The markets rallied last week as the Dow (+4.1%), NASDAQ (+3.1%) and S&P 500 (+2.7%) all exhibited strong gains. Meanwhile, taxable bonds continued their descent, falling about 0.5%, but tax-free muni bonds exhibited gains for the second week in a row, climbing about 0.2% - 0.4%. The recent volatility (and rise) surrounding interest rates has been a nemesis to bond values, as taxable bonds are down about 4% for the year. The rise in interest rates has also caused the technology stocks to lose value, as we have observed a reversal in momentum between the growth-oriented tech stocks (as evidenced by the NASDAQ) and its value counterparts, evidenced more by the Dow index. In fact, over the past four weeks, the value stock index has gained 5.9% while the growth index fell 5.5%.
In the news, the US government passed the $1.9 trillion stimulus package that will result in $1,400 stimulus checks for Americans who are below certain income limitations. The package also added $300 per week for unemployment claims. I philosophically believe more in the unemployment supplement than the stimulus checks, but the government forgot to consult with me before making their decisions. After all, Americans have saved more over the past year than ever before. That’s actually a good thing, because consumer spending represents almost 70% of our economy, and the amount of cash sitting on the sidelines is at an all time high. Therefore, it is expected that once the pandemic and its associated restrictions subside, consumer spending will provide a strong support to the US economy. The future of the US economy looks very good for the next two years, which could also eventually lend itself to inflation and higher taxes to pour water onto that proverbial fire.
Have a great day and week!