Weekly Economic and Stock Market Commentary – March 29, 2021
As for the stock market specifically:
Buyers won the week with a strong rally late Friday. The Nasdaq Composite was unable to climb out the hole made earlier in the week, so only 3 of our 4 market averages had wins for the week.
The markets seem to be in a period very similar to the weather we get from now until late April – much back and forth before leveling off into the Spring/summer pattern.
Since this isn’t a meteorology class, in stock market terms – there is no rhyme or reason for substantial movements in either direction on alternating days (or even within the same day).
The oil markets seemed to take in stride a ship blocking the Suez Canal last week. In fact, I saw a slight price decline at one of the stations I use.
Please don’t take this as a prediction, but gas prices are likely to climb a little more until Memorial Day, and slowly drop.
Last week’s pattern of alternating up and down days resulted in bad news for the bullish percent risk indicators. In fact, the bullish percent indicators, as well as others, went on defense. I recommend WEALTH PRESERVATION across the board.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of March 26th, 2021 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Federal Reserve Chairman Jerome Powell gave an interview last week where he stated that the US is nowhere near being unable to service its debt. Existing spending and tax policies in effect until October 1st have a reasonable likelihood of bringing the debt to 102% of GDP. For a contrast, at the end of fiscal year 2019, the federal debt was 79.2% of GDP. He says the nation will be able “to return to the issue” of “a sustainable fiscal path” when “the economy gets back to full employment, and taxes are rolling in.”
In my opinion – which is only mine – I am not sure that the distinguished Chairman is aware that tax revenues came to the US Treasury in record levels in fiscal year 2020, and are on track for another record for fiscal 2021. That said, it’s inconceivable that he does not know.
Our Chairman also seems to be unaware of Rongo’s Rule of Taxing and Spending. That rule is that our elected officials will find a way to budget at least $1.32 dollars of spending for each new dollar of anticipated tax increase. I first published that rule in this space at least 13 years ago, so the ratio may be different now, but I’m quite confident our government will spend more than the anticipated revenue increase.
The Commerce Department reported February consumer spending fell 1.0% in February.
The Commerce Department reported February Durable Goods orders fell 1.1%. That was the first decline in nine months. This was far from the 0.4% gain economists anticipated. The January gain was revised upwards to 3.5%. Core capital goods orders fell 0.8%. In the 12 months ending February 2021, durable goods orders rose 3.2%.
The National Association of Realtors reported February existing home sales fell 6.6% compared to January sales levels. The seasonally adjusted annual sales rate is 6.22 million units. This pace was up 9.1% from February 2020 levels. The median existing home sales price last month was $313,000 – an increase of 15.5% from February 2020. Inventory levels are down to a two-month supply.