The Bunny Market

It is officially spring this weekend, and we all look forward to sunnier times ahead. Some of you have already received the stimulus funds in your checking accounts, and other people are planning vacations and golf trips. Some economic updates to start:

Stock Market: The S&P 500 logged its first weekly loss in three weeks. Nike reported disappointing sales result, dragging the Dow Jones lower by more than 200 points. The Nasdaq index, including primarily technology and growth stocks, has fallen 0.6% in March, with a gain of 1.8% for 2021 in total. Tech and growth stocks are particularly sensitive to interest rate increases (or just fears of them).

2021 is being called ‘“bunny market” with the stock market hopping up and down on jitters over the impact of rising interest rates. An increase in interest rates tends to raise the cost of borrowing, which in theory discourages business investment in equipment, capacity and employment. In practice, the relationship between business investment and interest rates is more ambiguous. Rising demand can accompany rising interest rates, compelling businesses to expand despite the higher costs. Recent data is following this latter scenario.

Housing Market: Economists are concerned that with home prices increasing by over 10%, the country will experience an affordability crisis, because wage increases are still low and unemployment high. Meanwhile, in Manhattan and Boston, the exodus of tenants during the pandemic has allowed new buyers to expand into larger spaces at more reasonable prices.

Federal Reserve: The Federal Reserve announced this week that they will keep short-term interest rates low until the economy has weathered the effects of the coronavirus (as we generally expected they would do). Longer-term Treasury yields have soared this year as expectations for an economic rebound mount, and the stimulus is expected to unleash more economic activity. Expect an interest rate increase sometime next year.

Unemployment increases: A troublesome cycle of layoffs continues. New weekly unemployment applications are stuck at just above 1 million since last fall. The unemployment rate remains at 6.2%.

Businesses are re-opening, so why aren’t there more jobs? One potential explanation: Recent unemployment applications were from people who had been laid off earlier in the pandemic, gone back to work, and then laid off again.

Bond market: We are buying Treasury Inflation Protected Securities (TIPS) to help recover and offset the possibility of inflation. As Schwab’s economist Kathy Jones explains, Treasury bonds continue to demonstrate negative correlation with stocks over the short and medium term, and there is no clear alternative to fill that role.

Covid-19: The U.S. distributed the 100 millionth dose of the coronavirus vaccine today! Cases per day have plateaued around 53,000. Vaccine supply is increasing, and half of the U.S. population should be vaccinated by May.

Chief Medical Advisor Dr. Fauci says the variant first identified in the UK likely accounts for up to 30% of Covid-19 infections in the U.S. Defensive measures: Vaccination, masking, and physical distancing. The variant cannot mutate if it cannot infect hosts and replicate.

Nifty news: Every dollar has exactly the same value and usefulness because dollars are fungible. By contrast, baseball cards and other collectibles are non-fungible; each item has a unique value.

That also describes Non-Fungible Tokens (NFTs, sometimes pronounced nifties), which are in the news for being part of the biggest single art sale in history. The NFT itself is basically a blockchain inventory number for a piece of art. They can work like any other speculative asset, where you buy it and hope its value goes up one day, so you can sell for a profit.

You can buy the NFT of a piece of digital art like William Shatner-themed trading cards, the animated Gucci Ghost for $3,600, or the “Everydays” piece by Beeple that sold at Christie’s this week for a record-breaking $69 million. Read more about it from Christie’s.

Live long and prosper and have a great weekend!