“Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.” ~ Helen Keller
Question: What are your thoughts on market volatility going forward?
Answer: Optimism seems to be a more pervasive sentiment as we pass the one-year mark of the pandemic. Volatility could certainly increase. Though rising yields may be indicative of an economic recovery, market volatility and inflationary fear could produce future hurdles.
The month of February was long on optimism. Vaccinations increased in pace, and market consensus seems to be indicative of a possible strong economic rebound this year. The adage “don’t fight the Fed” rings true with accommodative monetary policy plans for another round of fiscal stimulus.
The yield on the 10-year Treasury hit a high for the past twelve months. Rising yields can be indicative of an economic recovery. At the same time there is a hint of inflation, which may be contributing to the rising long-term bond yields. Optimism and caution are good companions. The Federal Reserve remains firmly committed to its long-term goal of two percent average inflation as stated by Chairman Jerome Powell. This means we could see inflation rise to about three percent on a year-over-year basis, reflecting a rebound in prices that were held down during the lockdowns a year ago. Consumer spending is up after an uninspiring holiday season, and manufacturing activity continues to improve, and in Europe, there is a 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 good thing.
All eyes are now on discussion of 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.
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 are limited. Larger scale changes like the proposed net-zero carbon dioxide emissions mandate, a carbon-free electricity mandate, and two trillion dollars in decarbonization spending would have to meander through Capitol Hill, which could be a challenge. 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 so far comes under the category of narrow, technical, or even symbolic,” according to Raymond James Energy Analyst Pavel Molchanov.
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’ll continue to share any new developments that affect your financial plan. In the meantime, please feel free to contact us with any questions. Stay focused and plan accordingly.
Investing involves risk, and investors may incur a profit or a loss. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. There is no assurance that any investment strategy will be successful. The opinions expressed are those of the writer as of March 7, 2021, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance does not guarantee future results. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email firstname.lastname@example.org Website: www.raymondjames.com/Darcie.