Chief Economist Scott Brown discusses the latest market data.
The $1.9 trillion fiscal package passed both chambers of Congress and was signed by President Biden. In a prime-time speech, Biden promised that vaccines will be available to all adults by May 1, with a return to a sense of “normal” likely by July 4. Long-term Treasury yields fell early in the week but rose again on Friday.
The Consumer Price Index rose 0.4% in February (+1.7% y/y), up 0.1% (+1.3% y/y) ex-food and energy. Homeowners’ equivalent rent (24% of the overall CPI and 30% of the core CPI) rose 2.0% over the last 12 months, vs. 3.3% in the 12 months before that. The Producer Price Index rose 0.5% in February (+2.8% y/y). Ex-food, energy and trade services, the PPI rose 0.2% (+2.2% y/y). The report showed higher prices of raw materials over the last year, but it takes a huge increase in commodity prices to have even a modest impact on consumer prices. The TIPS spread was consistent with an expectation of 2.5% inflation over the next five years, but near 2% from the five years after that.
Next week, the Federal Open Market Committee is widely expected to leave short-term interest rates unchanged and to maintain its monthly pace of asset purchases (at $120 billion). Senior Fed officials will revise their projections of growth, unemployment and inflation, and we’ll get a new dot plot (which shows individual expectations of the federal funds rate). In his post-meeting press conference, Chair Powell is expected to downplay temporary increases in inflation and repeat that the central bank would need to see the economy get back to full employment with inflation at or above 2% for some time before raising short-term interest rates. February retail sales and industrial production reports should reflect bad weather.
As of close of business 03/11/2021
As of close of business 03/11/2021
All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business March 11, 2021.
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