We had mixed results last week as the Dow (+0.2%) was up, while the NASDAQ (-1.5%) and S&P 500 (-0.7%) were down. Taxable bonds and tax-free muni bonds were also down about 0.5% - 1% last week, which is a sharp drop for bonds. Looks like I spoke too soon last week, as muni bonds exhibited their first losing week since last October. We also saw a reversal in the tech stocks, as well as most of the “FANG” stocks dropping while their counterparts exhibited by the Dow (notably energy and bank stocks) reacted favorably to an improved economic outlook.
We are in the midst of a 6-month trend of the Treasury (bond) yields rising, particularly in the last month. The 10-year Treasury bond now stands at 1.35%, compared to 0.5% in August, and 1.0% only one month ago. This type of rise in yields often wreak havoc on bond values, which we have seen over the last month, and now in the past week for tax-free muni bonds. The rise in yields are a signal of either or a combination of two things: inflation and/or forecast economic growth. Economic growth is very favorable to the stock markets as well as the general public. However, inflation can be bad, but only if it’s not contained. Low inflation is actually good for the economy, as it normally accompanies (and is sometime caused by) wage growth. Many pundits believe that the stimulus packages and resulting national debt will cause inflationary effects over time, but they also believe inflation won’t rear its head for another 12 to 18 months. Time will tell.
Have a great day and week, and see below for last week’s market recap.