The Dow (+1.1%), NASDAQ (+1.7%) and S&P 500 (+1.3%) were all up last week, extending their gains from the prior week. Taxable bonds lagged fractionally, as they went down about 0.1%. Meanwhile, tax free municipal bonds continued their weekly non-losing streak since October, as they gained another 0.3% - 0.5%. The stock markets, as well as the bond markets seem to all be reacting to the same news, and that’s the anticipation of the large economic stimulus package being reviewed in Congress. A large stimulus package provides favorable expectations for corporate earnings, so stocks tend to perform well. Of all stocks, the stimulus provides more fuel to the small cap stocks, as they have already gained about 15% YTD, compared to about 5% for large cap stocks. Meanwhile, Treasury bond yields are rising in anticipation of inflation pressure, which causes the corresponding values of the taxable bonds to go down. Conversely, muni bonds are reacting favorably, as the stimulus package is expected to provide relief to many municipalities, and the anticipation of higher tax rates create an increased demand for tax free investments. In other words, look at all the various impacts and the domino effect of one “simple” policy.
Have a great week, and see below for last week’s market recap.