Fresh Highs from Equities, The Steepening Yield Curve and its Implications, and Interpreting Inflation Signals
February 22, 2021 | FIRESIDE CHARTS
U.S. equities climbed modestly higher on Friday to mark a fresh set of record closes, though a closer look at sector performance hints at some important nuance. And as the yield curve steepens and the 10-year UST yield comes off hitting a one-year high last week, we’re seeing signs that investors are feeling more optimistic about the broader economic recovery. Could there be trouble ahead for fixed income investors though as bond losses climb higher? And will Fed Chair Jerome Powell’s semiannual testimony on monetary policy tomorrow give any insight on the role of ongoing QE and the Fed’s apparent appetite for TIPS? Climbing commodity prices and stickers at the gas pump have also contributed to mounting inflation anxiety, though longer-term views add important context. And will the USD hold steady after testing support, or could it be poised to weaken further?
1. Most indices ground higher last week, but we note only 3 of the 11 sectors of the S&P 500 did the same…
Source: The Chart Store, from 2/22/21
2. The yield curve continues to steepen as it “normalizes”. The economic effects of rising rates are still muted by their historically low starting point, but bond losses are creeping up…
Source: The Chart Store, from 2/22/21
3. Are junk bonds signaling an “all clear” or are yields being distorted by the desperate investors’ search for yield?
Source: The Chart Store, from 2/22/21
4. The Fed’s balance sheet also ground higher as QE continues. We note this level of QE has not stopped rates from rising for the 3-30 year maturities…
Source: The Chart Store, from 2/22/21
5. Perhaps this helps explain TIPS’s performance of late. Is the Fed worried about inflation?
Source: The Daily Shot, from 2/22/21
6. While commodities have been surging of late, a longer-term view shows a lot more price appreciation is needed to establish a new medium- or long-term trend…
Source: The Daily Shot, from 2/22/21
7. The pandemic caused gas prices to plummet. Before we cry “inflation!”, note the price has yet to get back to 2019 levels…
Source: The Daily Shot, from 2/22/21
8. Keep your eye on the USD. It held at support after briefly touching 89, but if it breaks below 88, we may see significant weakness thereafter…
Source: The Chart Store, from 2/22/21
9. After a decade of painfully slow growth, new housing starts are back at a meaningful growth level…
Source: The Chart Store, from 2/22/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.