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Weekly Economic and Stock Market Commentary – March 15, 2021


As for the stock market specifically:

We may have to take heed of the line “Beware of the ides of March,” but the runup to today was a great week in the markets.  It seemed the pleasant weather brought out the bullishness of investors worldwide.

Just in case your head isn’t spinning fast enough, this week is quadruple witching, which tends to have higher volatility.

This week marks the start of the major March college basketball tournament.  I know that you don’t come here to get sports news, but there is a metaphorical connection between the brackets and the stock market.

The relative strength tool I use to select investments evaluates the options available, and guides an investment selection.

Quite simply, when picking bracket winners, few people bet on the 15 and 16 seeds to go far.  To date, only one 16 seed ever won a game, while significant numbers of teams seeded 1 through 3 ended up as winners of the entire tournament.

Another way to put it is the way I joked about it last month in the football game.  You don’t have to bet on Tom Brady, but you are a fool to bet against him.

When I evaluate investments, I start with those with strong relative strength, and move to weaker ones as we have less money to allocate.

In any event, two of the three major US market averages last week not only made buy signals, but also went on to record highs.  In addition, small and mid-cap stock indices went on to record highs.  The Nasdaq Composite has yet to make a buy signal despite the big gains last week.  Quite frankly, it doesn’t stink to start a week at record highs.

The risk assessors changed direction last week, and it was a turn for the better.  The bullish percent indicators each moved at lease 8 percentage point last week to put us in WEALTH ACCUMLATION mode.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of March 12, 2021 (Courtesy Dorsey, Wright, and Associates).

On a general note:

This $1.9 trillion dollar bill sends up to $5,600 to families and continues the additional unemployment benefit of $300 per week until September.

There also was talk of the law being able to speed the re-opening of schools with the money for upgrades to school ventilation systems.  Unfortunately, those projects won’t begin in this fiscal year, and likely not in fiscal year 2022.  They are part of the planned budget for fiscal year 2028.

Congress is now discussing an infrastructure bill with spending between $2 and $4 trillion dollars.

The Department of Treasury reported the country had a $1 trillion dollar budget deficit since the fiscal year started in October 2020.  Revenues during the same period of Fiscal Year 2021 were up 5% compared to Fiscal Year 2020.  Spending was up 25% in Fiscal 2021 compared to Fiscal 2020.  Better hold onto your hat, I think significant tax increases will not be far away.  Moreover, I can’t square how revenues went up during difficult times.

The Labor Department told us that February consumer prices rose 0.4%.  Some commentators called this modest – despite being more than double what the Federal Reserve is using as an inflation target.  If you don’t eat or use energy, inflation rose at a rate of 0.1%.

Finally, the Federal Reserve gave us information on household net worth at the end of 2020.  The bank reported household net income rose to a record $130.2 trillion dollars at the end of the year.  Stock market and real estate gains were major contributors.

Questions or want to talk? Email me at philip.rongo@ibexwealth.com.