The Week Ahead – Looking Back

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

1 Year.
12 months.
365 days.

March 13, 2020 is seared into my memory as it was the last time that I had a meal inside a restaurant in Los Angeles County (for those that crave Oyster Bar style Pan Roast I highly recommend The Dive in Temple City). On March 15 everything came to a standstill, as Mayor Eric Garcetti issued an order for all indoor dining to be halted as well as temporary closures on many businesses such as entertainment venues, bowling alleys, arcades, and gyms and fitness centers. That evening First Foundation also made the tough decision to have the majority of our staff begin working remotely. One year later, things are starting to look slightly more normal as indoor dining will once again be allowed (here’s to hoping that it lasts longer than the very brief summer reopening) as Covid-19 case counts continue to decline and the population of vaccinated people continues to increase. The S&P 500 has returned a gain of 48% over the last 12-months but we know that it hasn’t been all smooth sailing over that time. Now for some more staggering statistics. The Fed has purchased $2.4 trillion of U.S. Treasury securities over the last 52-weeks through the week of March 10 of this year, along with $0.7 trillion in agency debt and mortgage-backed securities.

This past week, President Biden signed a $1.9 trillion Covid-19 relief bill and over the weekend some people began receiving their $1,400 stimulus checks. Even before the weekend, commercial banks saw a record $3.0 trillion in deposits through the week of March 3. As my colleague Brett Dulyea wrote in last week’s piece “Growing Pains” overtime bond yields move in sympathy with GDP and those expectations continue to rise as more and more investors now believe that the worst is behind us. This past Friday we saw the 10-year U.S. Treasury yield jump to 1.64%, the highest level since February 6, 2020. In the midst of last year’s certainty the 10-year U.S. Treasury yield touched as low as 0.58%. While 1.64% is dramatically higher than 0.58% on a percentage basis, it’s important to look back and remember that the 10-year U.S. Treasury was yielding 1.88% to start 2020. Given the extreme amount of both monetary and fiscal stimulus it makes sense that investors begin pricing in better growth and inflation.

While the week ahead will be relatively quiet in terms of economic data, investors will be once again focused on Fed Chair Jerome Powell as the FOMC will be providing their latest rate decision in the middle of the week. As you may recall, when Fed Chair Powell testified to Congress in late February markets quickly turned negative as investors deemed that his comments were not dovish enough and that inflation may force the Fed to raise rates much quicker than originally anticipated. Per the CME, the market is currently expecting a 100% chance of no change, as in the Fed will neither increase nor decrease the Fed Funds rate. The Fed’s language will be closely monitored and Fed Chair Powell will most likely be seeking a fine balance between a more upbeat assessment on the outlook of the economy while reigning talk around inflation expectations. There’s a chance that the Fed’s “Dot plots” may show one hike by the end of 2023 as the ingredients which would warrant one, the unemployment rate back at pre-pandemic levels, and inflation modestly above target, may very well be on track in two years’ time. In the meantime, I look forward to enjoying some pan roast in the near future.  

Weekly S&P 500 price returns:

Week ending 1/8/2021:                 +1.88%
Week ending 1/15/2021:               -1.46%
Week ending 1/22/2021:               +1.96%
Week ending 1/29/2021:               -3.29%
Week ending 2/5/2021:                 +4.67%
Week ending 2/12/2021:               +1.28%
Week ending 2/19/2021:               -0.68%
Week ending 2/26/2021:               -2.41%                   ß FOMC testimony to Congress
Week ending 3/5/2021:                 +0.84%
Week ending 3/12/2021:               +2.69%

Data deck for March 13–March 19