Medicare Agent News: Optimism Reigns On Wall Street

Tuesday, April 6, 2021

Optimism Reigns On Wall Street

By Nicholas Jasinski | Tuesday, April 6

Confidence. Stocks indexes pulled back ever so slightly from their record highs today, following a sizable rally yesterday. Concerns about rising bond yields and even Covid-19 have largely faded into the background, as recent economic data releases have come in exceptionally strong and the discussion in Washington has turned to even more fiscal stimulus.

Discussions of a V-shaped recovery are back in vogue. As vaccinations continue at an accelerating pace, more government restrictions are lifted in more states, and Americans feel confident going out and spending their stimulus-boosted savings, the U.S. economy appears set for its fastest rate of growth in decades this year. Add the prospect of trillions of dollars of infrastructure spending and a Federal Reserve that’s in no hurry to tighten monetary policy, and the result is stock indexes near their record highs.

The S&P 500 and Nasdaq Composite both ticked down about 0.1% today, while the Dow Jones Industrial Average lost 0.3%. All three jumped at least 1.1% yesterday following Friday's strong March employment report. Add to that a pair of s urveys of activity in the U.S.’s manufacturing and services economies have come in at record levels in recent days.

With vaccines being rapidly distributed and all adults in the U.S. set to be eligible to make an appointment by April 19, that streak of improving economic data should continue and begin to be reflected in corporate earnings, too.

Investors appear to be increasingly confident betting that can outweigh a further increase in bond yields. Higher rates weigh on stock valuations because they make future earnings worth comparatively less when discounted back to the present, and because they create more attractive alternatives for yield-seeking investors. But if corporate earnings rise faster than higher bond yields pressure valuation multiples, stock prices can continue to rise, the argument goes.

“Rising, but not too high, inflation expectations and the likelihood of a long recovery continue to drive the equity risk premium lower, offsetting the increase in 10-year yields,” wrote Evercore ISI strategist Dennis DeBusschere today. “That will continue as 10-year yields move toward 2% over the coming months.”

The yield on the 10-year U.S. Treasury note pulled back slightly today, to about 1.66%. It began 2021 at about 0.9%. The next move in the Treasury market could come tomorrow, with the release of minutes from the Fed's rate-setting committee's latest meeting. Officials' remarks will be closely parsed for their latest thinking on the unfolding recovery and future monetary policy moves.

Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen are also scheduled to speak later this week at spring meetings of the International Monetary Fund and World Bank.

Barron's Lisa Beilfuss has more on what the recent string of positive economic data means for the stock market.