Guidance Wealth will be closed Friday, April 2nd to observe the Good Friday holiday
 
 The Markets
 
Last week, unemployment claims were looking good and consumers were feeling good.
 
The number of Americans applying for first-time unemployment benefits declined. Just 684,000 people filed claims during the week of March 20, down 97,000 from the week before, according to last week’s report from the Labor Department.
 
Granted, that’s a large number – higher than the highest number of first-time claims during the Great Recession – but it’s the smallest we’ve seen since the pandemic began, according to Christopher Rugaber of the AP. He wrote:
 
“Economists are growing more optimistic that the pace of layoffs, which has been chronically high for a full year, is finally easing…Still, a total of 18.9 million people are continuing to collect jobless benefits…Roughly one-third of those recipients are in extended federal aid programs, which means they’ve been unemployed for at least six months.”
 
Consumer sentiment also improved, according to data released last week. The University of Michigan’s Index of Consumer Sentiment was up 10.5 percent month-to-month, although it remained down year-over-year. Perceptions of current economic conditions improved, too. Surveys of Consumers chief economist Richard Curtin reported:
 
“Consumer sentiment continued to rise in late March, reaching its highest level in a year due to the third disbursement of relief checks and better than anticipated vaccination progress…The majority of consumers reported hearing of recent gains in the national economy, mainly net job gains. The data clearly point toward robust increases in consumer spending. The ultimate strength and duration of the spending surge will depend on the rate of draw-downs in savings since consumers anticipate a slower pace of income growth.”
 
Performance of major U.S. stock indices was mixed last week. The Dow Jones Industrial Average and Standard & Poor’s 500 Index both finished higher for the week, while the Nasdaq Composite lost ground.
 
(The one-year numbers in the scorecard are noteworthy. They reflect the strong recovery of U.S. stocks from last year’s coronavirus downturn to the present day.) 

Guidance Wealth will be closed Friday, April 2nd to observe the Good Friday holiday
 
 The Markets
 
What are professional asset managers thinking?
 
Bank of America recently published the results of its March global asset managers’ survey, which polls 220 professional investors responsible for about $630 billion in assets, reported Julia La Roche of Yahoo! Finance.
 
Many of those surveyed were optimistic about 2021. During the next 12 months:
 

• 91 percent of those polled expect the economy to strengthen (that’s a record high)
• 89 percent anticipate global profits will improve
• 52 percent expect value stocks to outperform growth stocks

 
So, what were managers most worried about?
 
For the first time since April 2020, the COVID-19 pandemic was not the most pressing concern for professional money managers. That spot was filled by inflation. Ninety-three percent of those surveyed expect inflation to rise during the next 12 months, reported Nicholas Jasinski of Barron’s, and that could affect stock prices. Jasinski reported:
 
“…higher bond yields mean higher borrowing costs, which could hinder the recovery and weigh on corporate earnings. Plus, a higher discount rate produces a lower present value for assets like stocks. And, when Treasuries produce enough yield, there’s greater competition for stocks.”
 
The discount rate is the Fed’s rate for lending to other banks.
 
One place to look for signs of inflation is bond yields. Recently, yields on U.S. Treasury bonds have been moving higher despite efforts by the Federal Reserve to keep them down, reported Lisa Beilfuss of Barron’s. It’s possible the bond market is pushing yields up because bond investors see inflation ahead. The AP’s Stan Choe and Alex Veiga explained:
 
“Inflation means future payments from bonds won’t buy as much – because the price of a banana or a bouquet of flowers will be higher than it is today. So, when inflation expectations rise, bonds are less desirable, and their prices fall. That pushes up their yield.”
 
Major U.S. stock indices finished last week lower.
 
(The one-year numbers in the scorecard are noteworthy. They reflect the strong recovery of U.S. stocks from last year’s coronavirus downturn to the present day.)
 

​The Markets
 
Investors had a lot to be enthusiastic about last week.
 
Major stock indices in the United States soared, finishing the week higher and setting new records along the way, reported Al Root of Barron’s. There was plenty of good news to fuel investor optimism:
 

• The $1.9 trillion American Rescue Plan was signed into law. The plan provides $1,400 payments to most Americans. It also delivers child-tax credits, health-insurance subsidies, and extends unemployment benefits into September, reported NPR. Funds also were made available for schools, states, and vaccination efforts, as well as tax relief for people receiving unemployment benefits.

 

• The spread of the coronavirus appears to be slowing. The 7-day average number of cases in the United States dropped 11.2 percent week-to-week, reported the Centers for Disease Control (CDC). More than 20 percent of Americans have received a first dose of a COVID-19 vaccine and more than 10 percent have been fully vaccinated. As circumstances have improved, a number of states have begun easing lockdown restrictions.

 

• Inflation remained low in February. For the 12 months through February 2021, the Consumer Price Index rose 1.7 percent, reported the Bureau of Labor Statistics last week. That’s well below the Federal Reserve’s usual target of 2 percent. However, food and energy prices increased significantly more than the index average.

 
Despite last week’s positive news, Ben Levisohn of Barron’s cautioned:
 
“The combination of trillions of dollars of fiscal stimulus, ultralow interest rates, and a newfound sense of liberation means the U.S. economy in coming months will be unlike any the country has experienced in decades. Growth will be faster. Inflation will run hotter. The job market could bounce back more speedily than even the Fed expects. This environment won’t be easy for investors to navigate…For those who can pivot as the market shifts, however, multiple opportunities await.”
 
There is another concern, as well. COVID-19 continues to mutate, and it remains to be seen whether vaccines will prove effective against new strains.
 
The one-year numbers in the performance table below are noteworthy and reflect the strong recovery of U.S. stocks from last year’s coronavirus downturn to the present day.

​The Markets
 
Neanderthal DNA may make people more – or less – susceptible to COVID-19, reported The Economist. It all depends on whether you have the genes and, if you do, which DNA string you inherited.
 
No matter what your gene sequence looks like, vaccines can help fight the virus. So far, all of the vaccines available in the United States have proven to be effective in preventing hospitalization and death from coronavirus, according to the Centers for Disease Control (CDC).
 
We saw the economic effect of accelerating vaccinations last week when the number of new jobs created in February exceeded expectations. The Bureau of Labor Statistics reported there were 379,000 new jobs, primarily in the leisure and hospitality sector, which was hard hit by the virus and lockdowns.
 
The Economist reported, “…there is a strong case for optimism. The experience of places such as New Zealand and Australia is that once the threat of coronavirus has passed, people are keener than ever on being out and about. Meanwhile, the vaccine roll-out continues to accelerate…The Senate is considering another $1.9trn in stimulus, including [checks] of $1,400 to most Americans. The job market has been deeply wounded. But there are growing reasons to hope that it might heal rapidly.”
 
Positive U.S. labor market news inspired a rally on Friday; however, earlier in the week, concerns about rising Treasury rates pushed U.S. stock markets lower. The yield on 10-year Treasury notes rose as high as 1.6 percent on Friday, following the jobs report, before retreating to 1.5 percent, reported Yun Li of CNBC.
 
Last week, investors disdained companies they have previously favored, according to a source cited by Ben Levisohn of Barron’s. The source analyzed the market by screening “…for stocks that had supersized 12-month returns at the end of 2020, faster relative growth, price/earnings ratios that were more than double that of the Russell 1000, and a minimum market capitalization of $10 billion…all of which fell at least 9 percent this past week.”

​The Markets
 
Students of financial markets may have noted a historically unusual event last week.
 
On Thursday, the yield on 10-year U.S. Treasury notes briefly matched the dividend yield for the Standard & Poor’s (S&P) 500 Index. This type of convergence is uncommon. In normal times, the yield on 10-year Treasuries tends to be higher than the dividend yield of the S&P 500. Felix Salmon of Axios explained:
 
“The 10-year Treasury note is a risk-free asset: If you hold it for 10 years, you know exactly how much it's going to return…The S&P 500 dividend yield is normally lower than the risk-free rate. Investors earn less in dividends than [they] would holding the same amount of money in Treasury bonds, but they hope that rising stock prices will make up the difference.”
 
These, however, are not normal times.
 
Throughout much of 2020, the S&P 500 Index offered investors a return comparable to, or higher than, 10-year Treasuries. Low Treasury yields reflected the Federal Reserve’s highly accommodative monetary policy, which kept the fed funds rate near zero to support the economy through the pandemic. Since August 2020, however, the yield on 10-year T-notes has been creeping higher despite the Fed’s actions. Last week, it closed at 1.46 percent.
 
Rising yields appeared to concern investors last week. Ben Levisohn of Barron’s reported:
 
“Usually, we can point to a big event or a piece of economic data that shook up the market, but that wasn’t the case this time. The data were solid, with weekly jobless claims dropping more than expected, durable-goods orders rising more than forecast, and personal income getting a big boost from stimulus checks sent out in January…But there was the 10-year Treasury yield.”
 
Rising Treasury yields suggest bond investors think the economy is likely to strengthen and pent-up consumer demand could spark spending on shopping, dining, and social events. A spending spree could lead to higher inflation, reported Elliot Smith of CNBC. Rising yields also could signal weak demand for U.S. Treasuries, according to Levisohn.
 
Last week, major U.S. stock indices finished lower.