April Economic Update
Improved economic conditions and broadened vaccine programs ignited a broad stock market rally, though rising treasury yields dragged on technology and high-growth stocks. The Dow Jones Industrial Average led the bullish sentiment for the month of March, picking up 6.62%. The broad-based S&P 500 Index rose 4.24%, while the tech-heavy Nasdaq Composite lagged out of the three major averages gaining 0.41%. (1)
The month began strong, thanks to a retreat in Treasury bond yields, solid economic reports, and the approval of another vaccine. However, enthusiasm faded when bond yields once again climbed higher following Federal Reserve Chair Jerome Powell’s belief that inflationary pressures will be felt in the future. Later in the month, yields leveled off and stocks resumed their advance, aided by the signing of the $1.9 trillion stimulus bill into law and another round of upbeat economic reports. (2)
Technology stocks and high-growth stocks played a limited role in the March rally as investors rotated their portfolios into other sectors, including cyclical names. The Nasdaq Composite early in the month flirted with a correction, defined as a 10 percent or greater pullback from a recent high.
Encouraging economic data was reported within manufacturing activity, as measured by the ISM Manufacturing PMI (Purchasing Managers Index), which reached 60.8 - a three-year high. The IHS Markit U.S. Services PMI registered even stronger relative gains, posting its biggest expansion since July 2014. (3,4)
Contrasting this positive economic narrative is a more mixed picture for the labor market. While the unemployment rate has come down from its elevated levels in 2020, improvement has slowed. The unemployment rate for February 2021 was 6.2%, a modest decline from its December 2020 rate of 6.7%. (5)
During the March announcement, the Federal Reserve maintained their near-zero interest rate policy and monthly bond purchasing program.Officials stated they expect some pickup in inflation this year, but price increases would be “transitory” (i.e. not permanent). To date, inflation pressures have been noted in commodities prices and real estate but large inflationary pressures for consumer goods and services have remained muted despite the government’s stimulus packages and the Fed’s actions. (6)