Week of April 12, 2021

Last week saw more records in the U.S. equity markets with the Dow and S&P 500 gained 2% and 2.7%, respectively, for their third straight weekly gain.  The tech-heavy NASDAQ gained 3.1% for its second weekly gain in a row.  Gains for equity benchmarks have come despite concerns about out-of-control inflation and the possibility that President Biden will raise the corporate tax rate to 28% form 21% to help fund his $2.4 trillion infrastructure proposal.

“The investment community is too upbeat in our opinion, not showing any concern for plausible tax increases being proposed by the Biden administration,” wrote Citibank research analysts Tobias Levkovich, Lorraine Schmitt and Jennifer Stahmer.  “Indeed, all developments are perceived as positive news.  Yet, such one-sided views are not usually a good starting point.”

Wall Street is approaching the start of first quarter corporate earnings reports which could offer further clues about whether one of the market’s biggest fears is coming to fruition – a too-hot economy and surge in inflation that compels the Federal Reserve to substantially dial back interest rates and accommodative monetary policies ahead of the Fed’s projections in 2023.  So far, Fed officials have said they expect a rise in inflation to be transitory and have repeatedly stated that they would be focused on ensuring that the labor market makes a full recovery before considering changing policy.

The yield on the 10-year Treasury seems to be settled in around the range of 1.6 – 1.7%, whose rapid rise last month caused a brief correction in the NASDAQ, and technology stocks in particular.