Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity benchmarks ended lower last week as higher yields continue to weigh on stocks. The yield on the 10-year U.S. Treasury rose another 10 basis points to end the week at 1.72% after pushing above 1.75% briefly on Thursday. The ongoing bear market in bonds may be driven by increasing inflation expectations amid a strong macroeconomic environment, improving COVID-19 trends and massive fiscal stimulus. The S&P 500 Index and the Nasdaq Composite each fell around three quarters of one percent in total return for the week, while the blue-chip Dow Jones Industrial Average dropped half a percent.
COVID-19 headlines focused largely on the continued rollout of the vaccine in the U.S. and Europe. President Joe Biden achieved his goal of administering 100 million COVID-19 vaccine shots in his first 100 days well ahead of schedule and may be able to reach double that goal. The U.S. is now administering about 2.5 million shots per day. Europe is facing vaccine distribution issues and higher case counts, which played into a selloff in oil last week. West Texas Intermediate crude fell 6.4% in the period.
The Federal Open Market Committee met to set monetary policy last week and updated their Summary of Economic Projections. The Fed left policy unchanged as expected. Officials increased their economic growth projection to a median of 6.5% for 2021. The so-called dot plot of expectations for the path of rates ahead still implies no rate hikes until at least 2023, though a handful of participants moved their forecasts up. Officials expect that an increase in inflation this year will be temporary, in line with recent Fedspeak. Federal Reserve Chairman Jerome Powell’s comments following the meeting suggested a high hurdle for any policy shift.
In other economic news, U.S. retail sales declined by more than expected in February, amid inclement winter weather throughout large parts of the country. Sales fell 3.0%, following an upwardly revised 7.6% increase in January that was the strongest in seven months. Industrial production also disappointed, dropping 2.2% in February. Manufacturing output fell 3.1% in the first decrease since April. Factories were set back by severe winter weather and supply chain challenges. Also impacted by weather, housing starts slumped 10.3% last month to the slowest pace since August. Building permits, a proxy for future construction, fell 10.8% but remained at a faster pace than starts for a seventh straight month.
More housing data is released in the week ahead, with reports on existing and new home sales. Both measures are expected to show a decline for February, after increases in January. February personal income and spending data may reflect some spillover from the $600 stimulus checks distributed in early January, though it will not yet reflect the latest round of stimulus payments.
Fed Chair Powell testifies this week before Congressional committees along with Treasury Secretary Janet Yellen on economic relief efforts.
As always, we’ll be watching and reporting back to you. Thank you.