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Stimulus Package, Not Econ Reports, to Influence Trading Week

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Monday, March 8, 2021

The latest trends in the stock market, over the past few weeks, look to continue ahead of the opening bell this Monday: an investment rotation out of big-growth tech stocks, especially those which benefited greatly from the “shelter in place” economy when the coronavirus pandemic took hold here a year ago, and into cyclicals. Currently, the blue-chip Dow is up around 75 points while the tech-heavy Nasdaq is down 100. The S&P 500 index is flat.

That’s about as clear as a picture gets. We know the forthcoming economic boom will manifest itself in all sorts of exciting ways, but investors have lately been careful not to run up already high valuations, especially considering an economy that begins to overheat will sooner or later be greeted with rising interest rates to sop up some of the inflation. Fed Chair Jerome Powell even invoked the dreaded “i-word” last week, sending indexes temporarily downward.

But the S&P 500 did close up last week, +0.8%. The three of 11 sectors that were down — Tech, Real Estate and Consumer Discretionary — point directly to these forward-looking risk mitigation techniques. We’re still positive, but cautious. It’s not a bad thing. But not until some new event comes along to stoke the fires even further do we expect a new notable higher plateau in the markets. That said, we likely already know the catalyst: the federal government’s $1.9 trillion relief/stimulus bill.

Currently, there is much discussion on Capitol Hill whether the costs associated with the bill are a correct remedy for pandemic conditions proper, or if it goes beyond to shore up economic difficulties in other aspects of American life. The short answer is: of course goes beyond; elected officials are putting their constituencies front and center, as they have done forever. But when top economists and state government leaders of both parties suggest the stimulus remedy will be far greater if we “go big,” this keeps the bill’s momentum intact. And if a few undeserving people manage to benefit, as well? So be it.

Last week was big for economic reports, with new prints on Manufacturing and especially Employment. The Leisure & Hospitality sector drove new job gains in a major way, as the Great Reopening is already being planned — hotel and airline reservations are fulfilling pent-up demand after most Americans spent a year away from vacation destinations. But while numbers climbed in both jobs and productivity over all, we still have ground to make up. We expect more of the same in future reads.

This week is calmer on that front. While we do expect new results from February’s Consumer Price Index (CPI) and Producer Price Index (PPI) along with Thursday's Jobless Claims report, we don’t see much moving the needle. News from Capitol Hill will likely dictate market performance to a much greater degree. After the opening bell this morning, Wholesale Inventories from January are expected to triple from December levels to +0.9%.

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