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March 1, 2021

February market review

Dear Clients and Friends of the Firm:

Though the shortest month, February was long on optimism. Vaccinations increased in pace, and market consensus seems to be coalescing more around the idea of a strong economic rebound this year. Continuing accommodative policy from the Federal Reserve (the Fed) and the expectation that Washington will produce another round of fiscal stimulus play into the reaction we’ve seen in the market.

Through that, we saw the equity market gaining 2.8% with seven of 11 sectors in the green. We did see volatility late in the month as the speed of rising rates caught the market off guard. The yield on the 10-year Treasury reached 1.46%, the highest level in a year, before settling back to end the month at 1.39% – but rising yields can be indicative of an economic recovery.

There has been, however, a turn to inflationary fears in some corners – which may be contributing to the rising long-term bond yields. One should always be cautious of too much market optimism, but Raymond James Chief Economist Scott Brown offers a counter argument to the simmering discussion.

“Within its revised monetary policy framework, the Federal Reserve will shoot for a period of inflation above 2% – following a period below 2%, as we’re seeing now – but the central bank remains firmly committed to its long-term goal of 2% inflation,” Brown said.

In the short term, Brown said he expects to see inflation rise to about 3% on a year-over-year basis, “but that simply reflects a rebound in prices that were held down during the lockdowns a year ago.” Market expectations of inflation for the next five years have risen rise to about 2.3%, but inflation is expected to settle to the Fed’s 2% goal in the five years to follow.

The reported unemployment rate of 6.3% understates the weakness in labor market conditions. Federal Reserve Chair Jerome Powell noted that the rate would be closer to 10%, adjusting for the decrease in labor force participation and classification issues, leaving the central bank “a long way” from achieving its goals. On a positive note, consumer spending is up after a lackluster holiday season, and manufacturing activity continues to improve, and in Europe, we’re seeing comparable rising optimism, for similar reasons.

This optimism continued to flow into some of the sectors most beaten up by the pandemic. Unlike the mid-to-late 2020 “tech and then everything else” trend, there is now broader participation underlying the equity markets’ year-to-date advance. That’s a welcome development.

Speaking of which, let’s review where we are:

Other topics worth exploration in our view:

The $1.9 trillion question

The biggest hurdle to the passing of President Joe Biden’s $1.9 trillion stimulus package is a split among Senate Democrats over a proposed minimum wage hike to $15. This provision appears to be on the way out, but Washington Policy Analyst Ed Mills said he expects political pressure, and eyes to the consequential 2022 midterms, will create enough incentive to pass a bill close in value to the one initially proposed without the minimum wage increase. You can expect, then, for discussions to turn toward an infrastructure bill, an administrative priority that will likely contain bigger policy decisions and a broader scope than a “road and bridges” package. Expect that debate to ramp up around late April and early May.

Fourth quarter earnings show strength

Most of the S&P 500 companies have reported fourth quarter earnings, with 79% beating estimates by an average of just under 15%, giving support to equity market performance.

Consensus estimates show earnings growth of 24% through 2021, but that could be a conservative view, said Joey Madere, senior portfolio strategist, Equity Portfolio & Technical Strategy.

“We see the potential for significant upside to this in the event of the economic reopening and the additional fiscal stimulus going as planned,” he said.

Climate orders limited by scope

The nature of executive orders, that they cannot change existing law and cannot spend money not appropriated by Congress, means the impact of two sets of climate change and energy orders signed by the new administration has been limited. Larger scale changes like the proposed net-zero CO2 emissions mandate, a carbon-free electricity mandate and $2 trillion in decarbonization spending would have to climb Capitol Hill, which is likely to be very steep on these issues, considering the tight majorities in both chambers and the relative power of moderates in this environment.

The energy sector continues to pay close attention to executive actions, but “other than a ‘pause’ on the issuance of new oil and gas leases on federal acreage, what the administration has done thus far comes under the category of narrow, technical or even symbolic,” Energy Analyst Pavel Molchanov said.

The bottom line

We believe there are good reasons to be optimistic about the future and to look forward to a rebound once vaccinations reach a critical level, perhaps as soon as spring, but we’re far from a complete economic recovery.

We hope you and yours are doing well, and we thank you for your continued confidence. If you have any questions, please reach out at your convenience.

On a Personal and Fun Note – How much do you really know about St. Patrick’s Day?

On March 17, people and communities all over the world celebrate their Irish-ness in observance of the Feast of St. Patrick, the patron saint of Ireland. Even if you have no Irish ancestry, you may enjoy some fun facts that are sure to amaze you – and those with whom you celebrate.

St. Patrick was actually not Irish, but of Scottish or Welsh descent. His name wasn’t Patrick either, as he was actually born Maewyn Succat. According to legend, he changed his name to Patricius (or Patrick) when he became a priest.

Planning on wearing green? Fact is, the original color of St. Patrick’s Day was blue, but it started to change in the 17th century. The color green appears in Ireland’s tri-color flag. Ireland is also known as the “Emerald Isle” because of its green landscape.

Enjoying a pint of stout? For most of the 20th century, Saint Patrick’s Day was considered a strictly religious holiday in Ireland, which meant that the nation’s pubs were closed for business. In 1970, the day was converted to a national holiday, and the stout resumed flowing.

The symbol of Saint Patrick’s Day is the Shamrock, the national symbol of Ireland. Feeling lucky? The odds of finding a four-leaf clover are one in 10,000.

So have a Happy St. Patrick’s Day and may the road always rise to meet you!

Remember, daylight saving time begins at 2:00 a.m. on Sunday, March 14. Be sure to move your clocks forward one hour. And take that opportunity to check the batteries in your home’s smoke detectors, too.

Please note that our office, along with the financial markets, will be closed April 2 for Good Friday and will reopen on Monday, April 5. Of course, you can access your account(s) online using Raymond James Client Access anytime, year-round.



Tricia L. Tripp, CPA, CFP®
Financial Advisor

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