Market Recap

Posted on April 16, 2021 by Gemmer Asset

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Weekly Recap

 

Another solid week for the equity markets, and even the beleaguered bond market managed to rally. For now, stocks are shrugging off the rising COVID case count around the world…

 

 

…and choosing to focus instead on the unfolding economic growth cycle. For example, this week’s retail sales report was a blowout. Sales surged 9.8% in March, as you can see below.

 

 

…and choosing to focus instead on the unfolding economic growth cycle. For example, this week’s retail sales report was a blowout. Sales surged 9.8% in March, as you can see below.

 

 

Strangely, the Fed is acting like the housing sector still needs help. As part of their ongoing QE plan they are buying mortgage-backed bonds to help provide liquidity to this sector. Their holdings hit a new highs this week.

 

 

Strong retail sales, soaring housing starts. What do you think bond yields would do? Go up, right?

 

That would be too easy!! Bond yields tumbled and bond prices staged the second biggest rally of the year on Thursday, with the long-bond ETF gaining roughly 2%.

 

 

And as it turns out, yields have been in a downward trend all month despite the blow-out economic data as you can see below.

 

 

What gives? No one is quite sure. Maybe the market was oversold and simply due for a bounce regardless of the news. Maybe the Fed is simply buying so many bonds in the open market they are keeping a lid on yields. As you can see below, the Fed’s holdings of securities now totals $7.6tn.

 

 

Along the same lines, the Fed now owns more than 25% of all Treasury bonds out there.

 

 

Another theory is that international investors stepped into the Treasury market this week to pick up some attractive yields. As you can see below, a Japanese investor can earn 1.32% on a 10-year Treasury currency hedged versus just 0.11% of the equivalent Japanese bond.

 

 

Now the hedge isn’t perfect as it would need to be rolled over every few months, but still. This has to be a factor.

 

Overall, it’s hard to believe the 10-year yield is headed back to 1%, but the path towards 2% may not be a straight line after all.

 

Charts We Found Interesting

 

1. The improving trend of COVID cases in the U.S. has come to a halt.

 

 

2. The growth of new COVID variants in the U.K.

 

 

3. At least vaccination rates for those most at risk is nearing 80%.

 

 

4. A sign of how much things have re-opened in the U.S. – hotel occupancy rates are almost back to normal.

 

 

5. The sordid history of fund blowups. And don’t forget, the losses at Archegos were 100% Bill Hwang’s money. This will go down as one of the largest and quickest personal wipeouts in history.

 

 

6. This is more a measure of how anemic flows were into stock funds over the last twelve years than how crazy things are now.

 

 

7. It is now costing $24,000 more to build an average home simply due to soaring lumber prices.

 

 

8. Are Californians setting up shop in Nevada, Arizona, and Texas? Last year was the first year ever that California witnessed net population decline. California’s population fell from 39,437,610 in 2019 to 39,368,078 in 2020 – a net decline of 69,532.

 

 

9. In honor of tax week – your odds of being audited are at an all-time low.

 

 

10. The long legacy of prohibition. Blue are wet counties, yellow are partially dry, and red are 100% dry. What’s up with that county in South Dakota??

 

 

 

Have a good weekend.

 

 

 

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