Updated: Feb 25
Clint Carpenter, Director of Operations
Hello and thanks for listening to First Choice Financial Solutions market commentary. I’m Clint Carpenter, Director of Operations. I’ll start things off with a quick summary of where we’re at so far this year, and then I’ll pass the mic to my colleague Kris Venezia, market analyst, followed by Daryl Eckman, our economic strategist.
Whether you can believe it or not, the end of February is already upon us, as is the one-year mark since the beginning of the pandemic. This time last year we certainly had no idea what was upon us as a society, did we? The major indices, which have been rather volatile as of late, have posted fairly good returns so far this year. Both the DOW and the S&P are up slightly over 4% YTD, and the NASDAQ has gained 5%.
Treasury yields have ticked up in the past few weeks, especially the longer out we go. The 1-year is still yielding next-to-nothing, less than one-tenth of a percent, but the 10-year is paying close to 1.4 and the 30-year has climbed to 2.2%. This has pushed mortgage rates up slightly as well, the national average just climbed back over 3%, although only slightly. The Fed continues to have a soft outlook on inflation and interest-rate policy, but we know that can change at the drop of a hat. We are heavily scrutinizing fixed income positions in our portfolios right now, turning our attention instead to where else we can find value and yield.
The price of oil is on a tear, with WTI crude at about $63/bbl today. Gold continues it’s steady but slow decline, currently at $1,797/oz, and silver, which had some recent excitement, has settled just shy of $28/oz.
Kris Venezia, Market Analyst
We have seen a recent under performance from the Nasdaq which is largely made up of tech names. I want to touch on that to start.
Without getting too much into the weeds, the recent rise in rates on the long end caused some selling of the tech names. When rates rise, it puts pressure on growth stocks of which many are tech.
I think it's important to keep in mind that tech overall has still performed really well to start the year. We aren't going to completely change our outlook on growth because of a blip. However, if rates continue to rise, it's a risk we'll have to monitor.
Another topic I want to go over briefly is recent testimony from Federal Reserve Chairman Jerome Powell. He spoke in front of the U.S. Senate.
One big takeaway was his analysis of inflation. There is a growing belief that inflation will rise as the economy reopens once more people are vaccinated. Chairman Powell said he is not concerned about high inflation at this point. He explained that he believes the pandemic is causing a strain on the economy that's more deflationary than inflationary.
A second takeaway was Powell's commentary on the Fed's asset purchases. The Fed is a huge buyer of debt (bonds). He said the Fed sees the economy still in a rough spot, so it will continue to buy debt at a high level. The Fed buying debt is a way for them to keep rates under control (buying debt can push rates down).
The Democrats' Covid relief bill is continuing to progress through Congress. It has basically no Republican support at this time, we'll see if that changes when votes start happening on the full floors.
The House is expected vote and pass the bill by the end of the week. The legislation would then go to the Senate. Democrats do not need Republican support to work it through, but, it takes just one Democrat in the Senate to throw a wrench into everything.
The nearly $2 trillion bill is seen as a catalyst for the markets. Investors believe that money will flood into the economy and support spending and asset prices. The expectation is that Democrats will get it through the House and Senate and onto President Biden's desk in mid-March.
Finally, I want to discuss a short story I picked up from flipping through earnings reports. John Deere, the company that makes a lot of farm equipment, had an interesting tidbit in their very good report last week.
Executives said they have seen farmers spending more money on upgrading their equipment. They explained that when farmers first started receiving financial aid last year, farmers put that money towards paying off debt and into a rainy day fund. With debts paid off and the outlook brighter, Deere executives said farmers are now starting to put that money to work.
While this story is specific, it supports a macro idea that consumers across the country are going through a similar process. We have seen many Americans beefing up their bank accounts during the pandemic. There's also evidence that shows Americans used stimulus checks and other Covid relief aid to pay off debt. With more debt paid off and bank accounts filled up, we could see consumers start spending money aggressively as the economy opens up more in the summer.
Daryl Eckman, President
I want to talk more big picture. It's really important to pay attention to the attitudes from investors right now.
We like to think like we know it all, but it's important for us to take a good hard look and see where our blind spots might be. Since we are not too full of ourselves, we will be more on our toes and see things from more angles.
We are anticipating at any given time that a correction could happen. We want that to happen because corrections give us an opportunity to take money off the sidelines.
I am also noticing in my conversations with clients that Democrats are more optimistic with the economy and Republicans are more pessimistic with the recent changes in Washington. It's our job to not let political bias impact how we are investing funds.
If you have concerns at this moment, reach out to us and we have plenty of information and research that demonstrates how the market performs over the long term.
The IRS is open for business, and we’re here to help you file your taxes. The agency started accepting returns on February 12th, and as of right now, the deadline to file is April 15th. We could still see that deadline pushed back as we did last year, in fact the IRS has pushed the deadline for residents of Texas to July 15, citing the damage caused by the recent winter storms. I wouldn’t be surprised if it’s pushed back for everyone, considering delays in sending out tax forms by various government agencies and private companies. I’m aware of a few 2019 returns that have yet to be processed still, as well.
Another note on taxes - if you did not receive the full amount of stimulus you believe you’re eligible for, there is a Recovery Credit to claim on your 2020 tax return. You can now also log in to the IRS website, create a login to view your tax account, and you’ll see a summary of the stimulus amounts the IRS has on file as having been paid to you. I’d highly encourage anyone listening to do that, not only to check your stimulus, but to keep an eye on your tax filing history and monitor for fraudulent returns filed in your name.
Alright, we covered a lot today, but I hope you enjoyed the content. Please always feel free to reach out to us via our website, social media or the old-fashioned way, give us a call at 888-545-4746. Thanks for listening and have a great day.