The Market Today

Powell Remains Unalarmed by Rise in Rates, Inflation Expectations

by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Monitoring the Stimulus Push: Senate Majority Leader Schumer said he is continuing to push for an increase in the minimum wage to be included in Democrats’ stimulus proposal, but acknowledged the bill already faces a small margin of net support. He said the stimulus process is on track for lawmakers to be able to send approved legislation to President Biden to sign before some current key protections from the December bill expire on March 14. The need for additional stimulus was a common line of questioning in Fed Chair Powell’s Senate testimony and the divergence of opinion along party lines was clear. The White House said the final size of the bill has yet to be determined.

Monitoring the Vaccine Rollout: AstraZeneca said Tuesday that it expects the FDA to approve its vaccine sometime in April. Johnson & Johnson, whose vaccine is currently in the FDA review process and expected to be approved soon, said it has 4 million doses that will be available immediately upon authorization. The Company said Monday it could ship 20 million vaccines to the U.S. by the end of March. In his testimony before the Senate, Fed Chair Powell said vaccines the “single best policy” to facilitate a fuller economic recovery.


Tech Remains the Weak Link but Stocks Stage Afternoon Recovery After Powell Says Fed Will Keep Easy Policy in Place: U.S. equities staged quite the recovery in the second half of trading Tuesday after Fed Chair Powell (more below) pledged to keep policy easy, even as he projected the economy could grow 6% this year as vaccines become more widespread and allow the economy to more fully reopen. The S&P 500 had declined by as much as 1.8% in the first half hour after opening, dragged down again by losses in the tech sector. But while tech remained near the bottom at the close, trailed only by losses in auto-related names, the final losses were notably smaller than worse levels earlier in the day. As a result, the Nasdaq declined 0.5% after having tumbled nearly 4% at the open. Tuesday’s positive late-afternoon trajectory has carried over into Wednesday’s pre-market trading, with Nasdaq futures tracking gains across Europe and leading U.S. index futures higher with a 0.7% gain.

Notably, the continued recovery for equities overnight has played out alongside a push higher in Treasury yields. Yields swung about during Fed Chair Powell’s Senate testimony on Tuesday, but maturities inside of the 30-year Bond ultimately ended the day lower. The 10-year yield dipped 2.4 bps to 1.34%. That sentiment has sharply reversed, however, to send the yield on the key benchmark note up 4.9 bps at 7:25 a.m. CT to 1.39%, a new 12-month high. The 2-year Treasury’s 1.2-bp increase did push the yield to a one-month high of 0.12%, but also resulted in the 2-year-10-year spread widening to 127 bps, a new high since January 2017.


Fed’s Powell Sticks with Pledge to Keep Policy Easy to Ensure Recovery Is Sustained: Despite the recent rise in bond yields, attributed to an increasingly stronger growth outlook and some inflation concerns amid an improving pandemic, vaccine rollout, and Congressional push for more stimulus, Fed Chair Powell didn’t veer from his position that monetary policy will need to be accommodative for “some time.” Powell sounded upbeat on the outlook, but also stressed that “we should not underestimate the challenges we currently face.” He described the recovery as partial and uneven and said the economy is a “long way” from the Fed’s goals, pointing several times to the millions still out of work. He dodged several questions about the need for additional fiscal stimulus, particularly a package as large as the $1.9 trillion plan Democrats are pushing for, and the possibility that certain asset bubbles are building. Most importantly, Powell sounded calm and unconcerned about the recent climb for longer Treasury yields, characterizing the move as “a statement of confidence” in the outlook. He also said, “I really do not expect that we’ll be in a situation where inflation rises to troubling levels,” even after considering the potential release of pent-up demand or another possible round of stimulus.

Consumer Confidence Rises More than Expected in February but Remains Low: The Conference Board’s headline consumer sentiment index rose from 88.9 in January, previously reported at 89.3, to 91.3 in February, beating expectations of 90.0. Nonetheless, confidence remains in the bottom half of its pandemic range and notably below 2019’s average of 128. The current assessment improved notably from 85.5 to 92.0, consistent with the drastic improvement in the U.S. pandemic since mid-January. Encouragingly, the labor market differential, a gauge of perceived job opportunities, was positive for the first time since November. Expectations, however, edged lower after two months of gains.


Mortgage Applications Likely Affected by Snow, but Trend Remains Negative: Mortgage applications fell 11.4% for the week ending February 19 as purchase apps dropped 11.6% and refi apps declined 11.3%.  Mortgage applications have taken a hit recently with purchase applications now down 24% over the past five weeks.  The blanket of snow sitting atop the majority of the country likely contributed to this report’s weakness; however, mortgage rates have also risen over the past three months.  The 30-year mortgage rate jumped 10 bps last week alone, up to 3.08% and now 23 bps above its 2.85% low from early December.

New Home Sales: At 9:00 a.m. CT, new home sales are expected to increase 1.7% in the January report.

Fedspeak: Fed Chair Powell will continue his semi-annual testimony today at the House Financial Services Committee.  Also speaking today are Governor Brainard (9:30 a.m. CT) and Vice Chair Clarida (12:00 noon and 3:00 p.m.).

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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