A recap of the past week in 3 short headlines.
1. Investors Get Back Together with Tech
The ongoing feud between the rising Treasury yield rates and high-growth tech stocks was seemingly put on hold this week as the NASDAQ rallied 2% while the Dow Jones gained nearly 4%. For the first time in its history, the Dow crossed the 32,000 point level. At the same time, the S&P 500 and Russell 2000 posted record highs. On the other hand, the NASDAQ had quite a roller coaster of a week. After falling into a correction on Monday, the NASDAQ rocketed to a gain of 6.3% over the next three days.
Though the overall market fared well, the sworn enemy of growth — rising Treasury yields — surged on Friday to 1.63%, the highest it’s been in 13 months. Expect investors to continue to monitor the Treasury yields as indicators for the broader market.
In other news, the long-awaited $1.9 trillion relief bill was signed by Biden. This stimulus is no joke — it’s a whopping 9% of the total GDP, and it is forecasted to boost consumer spending by nearly 20%.
And finally, for the 4th week in a row, so-called “value stocks” have outperformed so-called “growth stocks”, possibly symbolizing the age of stocks “mooning” daily might be over (sorry WallStreetBets).
2. COVID-19 Update
The CDC released finds about COVID-19 patients, and unfortunately, even the pandemic discriminates. African Americans are 3x as likely to be hospitalized and 2x more likely to die from a COVID-19 infection, particularly because of stress factors such as affordable testing, vaccinations, and proper medical care. On the positive side, the new stimulus bill should help alleviate some of the financial burdens of vaccines/testing and level the playing field.
Through better testing protocols, vaccinations, and more information, COVID-19 cases have decreased dramatically to the highs of last November. However, with many states relaxing guidelines and reopening stores, danger is lurking. If people are not careful, many analysts say another spike might occur once again. If states have learned their lesson from the first unsuccessful reopening, the boost in consumer activity might bode well for the economy.
3. Biden with the Assist
President Biden signed the COVID relief package into law, assisting struggling small-business and people around the nation by providing aid just like LeBron assists all the Lakers. Though this financial package might help in the short-term, its long-term effects might set into motion several consequences. This package entails the following:
- $400 Billion to direct checks to consumers ($1,400 each).
- $360 Billion for state aid.
- $200 Billion for unemployment benefits.
- $165 Billion for schools, and the remainder for pensions, vaccines, insurances, and businesses.
If economic growth is boosted too much by the stimulus, it might prevent future expansion. If the market experiences too much growth too quickly, inflation would be a likely side-effect. This could cause the Fed to potentially increase rates and limit future monetary stimulus, restricting growth of the market. Money doesn’t grow on trees, and in this case, the US has had to go into further debt to finance its policies of stimulus. In the last year, the US debt has risen by nearly 20% ($5 trillion). Though this shouldn’t be a problem soon, lenders will eventually want their money back. This means the US will either take on more debt or, more likely, adopt fiscal policies that increase taxes.