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Inflation Expectations Hit 8-Year High

Rates turn lower as expectations of high inflation rise
Inflation expectations have risen to an 8-year high as Congressional Democrats discuss passing the $1.9 trillion stimulus bill while the Fed leaves their benchmark rate near zero.  Despite recent market optimism, the potential increases in inflation and new strains of COVID-19 weighed on markets.  Major equity indices closed lower after reaching record highs yesterday – the S&P 500 fell 0.1% while the DJIA was flat.  Treasury yields and swap rates fell moderately across the curve – the 10-year UST yield closed 1 bp lower at 1.15%.
Global COVID-19 cases near 107.4 million while fatalities top 2.3 million
The rollout of vaccines has increased over the past weeks, with the US beginning to also send doses directly to clinics.  While state leaders are concerned of shortages, the US is nearing 1.5 million doses/day – the Biden administration’s goal.  Meanwhile, the WHO has been tracing the origin of COVID-19, reporting that it likely came from an animal rather than a lab.
NFIB small business optimism index falls to an 8-month low
The index fell from 95.9 in December to 95 in January, and small business do not see economic conditions improving in the near future, forecasting the lowest level in 7 years.  On the flip side, JOLTS (job openings across the nation) data for December were higher at 6.646 million, +74k from the month before.
NY Fed reports consumers expect their overall spending to rise by 4.2% by next year, the highest level since 2015
According to the bank’s January Survey of Consumer Expectations, overall “perceptions about households’ current financial situations compared to a year ago improved slightly in January.”  The report detailed that consumers also expect household income to rise by 2.4%, nearing pre-pandemic levels.

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