Insights

WuRevue Week Ending 2/26/2021

Top News:

02/22: Investors fixated on the recovery and reflationary narrative as the 10-Year Treasury yields zoomed higher to pre-pandemic levels, having started the year at below 1%.  Confirming this optimism, a measure of leading economic indicators saw “broad-based” gains in January.  Elsewhere, China urged the lifting of US sanctions and tariffs, after Biden told European allies “we must prepare for long-term strategic competition with China.”  Business climate in Germany rebounded in February, where improvements were seen in both current and future expectations.

 

02/23: In his congressional testimony, Chairman Powell appeared committed to the Fed’s ongoing loose monetary policy, given the economy is “a long way from our employment and inflation goals.”  Biden’s $1.9T fiscal recovery bill took one step closer to a House vote, expected by week’s end.  In tandem with the promise of more federal aid, Americans grew more confident in the economy in February, even as they remained worried about the pandemic’s duration. Registering the strongest annual growth in over six years, home prices increased 10.4% in December.

 

02/24: J&J’s single-shot vaccine is expected to be approved by the FDA on Friday.  In a second day of testimony, Powell reiterated his commitment to monetary stimuli until early 2022, at least.  Both reports propelled US equities higher.

 

02/25: A notable decline in initial weekly jobless claims to a three-month low and January’s stronger than anticipated durable goods orders pointed to continuing recovery.  However, US indices, particularly growth stocks, saw steep losses due to surging yields (telegraphed already in last week’s WuRevue).

 

02/26: The market struggled to regain momentum, despite evidence of robust consumer spending in January, which showed the biggest increase since last June, thanks to governmental stimuli. Meanwhile, the so-called PCE price index, the Fed’s preferred gauge of inflation, crept up at an annual rate of 1.5%.  Consumer sentiment inched higher throughout February, remaining well below its pre-crisis peak, however.

 

 

Heard on the Street:

“Around the globe value is trading at extremely deep discounts relative to growth. No matter how we measure valuation, value-to-growth discounts are wider than 95% of the respective country’s or region’s history — except in Australia.  The tailwinds of Brexit and rapid COVID vaccination make the U.K.’s low valuation especially attractive.”

— Rob Arnott, founder of Research Affiliates, as quoted by MarketWatch on 02/24/2021

 

 

Longer Game:

The bitcoin/cryptocurrency craze has the Street divided.  Charlie Munger, the vice chairman of Bershire Hathaway and long-time partner of Warren Buffett, had this to say: “I don’t think bitcoin is going to end up the medium of exchange for the world. It’s too volatile to serve well as a medium of exchange… Bitcoin reminds me of what Oscar Wilde said about fox hunting. He said it was the pursuit of the uneatable by the unspeakable.”

 

Biden ordered a review of supply chain vulnerabilities in four areas: computer chips used in consumer products; large-capacity batteries for electric vehicles; pharmaceuticals and their active ingredients; and critical minerals used in electronics.  It remains to be seen what remedies would be prescribed to shore up weaknesses.

 

 

Bonus:

US is poised to enjoy a dramatic ramp-up in vaccine rollout: excluding trial vaccines not yet approved, the Administration believes an additional 545 million dosages will be distributed from now until the end of July.