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10-Year Cools Off a Bit, Markets Mixed to Start Week

Monday, March 22, 2021

Market indexes are mixed early Monday morning, as we set up for a new week of trading. Last week, a fresh ramp-up of the 10-year bond yield — surpassing north of 1.75% Friday before closing at 1.73% — brought renewed angst to investors about rising inflation, followed by an increase to interest rates from the Fed. The 10-year has cooled off today to around 1.69% ahead of the open, but that’s still almost 60 basis points higher than it was just two months ago.

The issue at hand is not likely the actual rate on a day to day basis, but how high it climbs — and how fast. Hovering around 1.7% or even 1.8% for a period of the next few weeks or so (when we’ll be greeted with a new earnings season to take on added importance where we may be headed) would still be below the Fed’s optimum 2%. The worry may be more what happens once 2% is broached — do we continue climbing a basis point per day?

As we know, the impetus of Fed Chair Jay Powell and the Federal Open Market Committee (FOMC) is in its dual mandate: not just keeping the economy humming at a 2% clip, but also maximizing employment. In February, monthly jobs numbers took a big step forward with 379K new jobs created, although the lion’s share of these came from one segment: Leisure and Hospitality, at 355K. Education/Healthcare and Retail, the two next-biggest in terms of job growth, were fewer than the number of Government jobs lost in February.

And even though the headline Unemployment Rate came in at 6.2% — which hasn’t been this low all pandemic, and it was 2014 the last time we were at these levels — there is subtext, like the U-6 (aka “real unemployment") which registered 11.1. Again, this is at pandemic lows, but it’s been more than five years since we’ve been here. Labor Force Participation is stubbornly plateauing at 61.4%. All these figures — plus the nearly 10 million jobs we’re still down over the past year — suggest the Fed has plenty of work in this regard.

The good news continues to be the rate of vaccinations in the U.S. particularly compared to the rest of the world, which not too long ago was ahead of where we were. While the U.S. registered a world-high 29.6 million Covid cases overall, with 539K having perished from the disease, currently nearly 25% of the U.S. population has received at least one dose of the Covid vaccine, with 44.1 million fully vaccinated, including over 40% of all Americans over the age of 65.

Fatalities in the seven-day moving average are now the lowest they’ve been since prior to Thanksgiving last year, which was at the foothills of the biggest wave we’d seen over the holiday months. We’re now around 1000 deaths nationwide per day, with this figure hopefully coming down further in the coming weeks and months. However, new spikes of Covid are expected in certain regions, especially over Spring Break where young people party in close confines, maskless — and most yet unvaccinated.

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