Rate Focus? | March 19, 2021

AUTHOR: Jason J. Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P500, NASDAQ, Inflation, Consumer

Markets ended the week slightly down from the last. Rates were in focus, but should they be?


Markets were in the red most of the day only to surge into the green in the closing minutes. Monday was light on economic data, but this week will have plenty for investors to focus on. Retail sales report on Tuesday, the Federal Reserve Board (FRB) meeting ends Wednesday, and Friday will be busy for derivatives.


The movement for markets was mild on Tuesday, but still in the red. The FRB kicked off their two-day meeting. This is a hotly awaited meeting as investors eagerly await the FRB’s response to the recent rise in rates. If they respond with an operation twist it will be viewed as yield curve control. As the long end of the curve rises, we create gap to the next recession. This is because we increase the travel required to a yield curve inversion.


Markets ran in red most of the day. At 2PM that all changed. The FRB meeting adjourned with no change in rates as expected. The dot plot (individual member polling for future rate hikes) pointed to an increasing acceptance of rate hikes in 2023. This willingness to accept the reality of the recent rate surge helped markets push ahead.


Everything reversed course on Thursday. While the FRB reaction yesterday was welcomed, Thursday the focus was on higher rates likely not fading. The 10-year treasury was above 1.75% for the first time since before the pandemic.


Markets were fairly range bound on Friday. What was poised to be an active day in the derivative markets proved to be a mundane end to the week. Markets ended the day moderately lower.


In all The S&P 500 ended the week lower. Driven by a rise in the 10-year treasury rate, ending the week at 1.74%. A high enough level to cause concern (specifically for the speed by which we got there). However, this is a low enough level that monetary conditions are viewed as extremely loose. Pre-pandemic, the lowest level the 10-year treasury had ever reached was 1.37%. With it merely .37% higher, there is reason to ask if too much is being made of the recent rise.

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