The market began the week on a calm note as volatility and trading volumes both came in at modest levels. Furthermore, a host of economically positive news — related to everything from consumer confidence and infrastructure plans to vaccine data — was released this week. However, the market’s muted response shows that the economy and the stock market are not always joined at the hip.
Consumer confidence data released this week was notably strong, lifted by the continued rollout of COVID-19 vaccines and strong fiscal stimulus. American consumers are demonstrating renewed spending on big-ticket items such as autos and homes — a good sign for the economy. However, coinciding with rising economic growth expectations is a renewed rise in long-term Treasury yields. The rise in yields had a dampening effect on performance in many areas of the market, including high expectation growth stocks and high quality bonds.
Adding to economic growth expectations, not to mention inflation fears, President Biden released a $2.25 trillion infrastructure plan. The plan includes spending to fuel growth in multiple areas, including strengthening transportation networks, further developing high-speed broadband, and updating manufacturing systems. To help pay for this plan, it is expected that corporate taxes will be increased from 21% to 28%. However, the plan still needs to go through both houses of Congress — where many of the plan’s provisions are likely to be amended and changed.
Lastly, vaccine news continues to be overwhelmingly positive. According to a study published by the CDC on Monday, the vaccines from both Pfizer and Moderna not only prevented illness, they also effectively prevented coronavirus infections, with significant protection occurring two weeks after the first dose. Infection protection went above 90% after the second dose. Studies such as these bode well for stopping the spread of COVID-19 and accelerating the economic recovery. While the U.S. is not completely out of the woods — there are signs that new cases have been rising as spring weather improves — it does finally feel like there is a light at the end of the tunnel.
Stay safe and be well.
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