Written by Sid Mohapatra
Risk markets locked gains for the first quarter of the year last week in a shortened holiday week, with the S&P 500 crossing the 4,000-point mark for the first time on Thursday. Looking into the economic data to reflect this risk-on sentiment will show you signs of an economic rebound with the Canadian GDP print stronger than expected for January, US Consumer confidence increasing to the highest level in the pandemic era and manufacturing activity in the US surging in March and expanding at its fastest pace since 1983. Stepping back, we are witnessing the newest modern monetary policy stance of combining fiscal exuberance with lower rates. This plan is clearly evident from President Biden’s extensive infrastructure proposal which will define the fiscal spending and tax revenues landscape for years to come.
Biden’s $2.25 trillion “American Jobs Plan” focuses on infrastructure, cleantech, and research & development in an eight-year period. Massive fiscal spending ($2.3 trillion Cares Act and $1.9 trillion American Rescue Plan) will hope to repair the irreparable damage done by the corona crisis and kick start the next phase of recovery of the pandemic. Having said that, the new fiscal plan aims to be revenue-neutral as it seeks to increase taxes and won’t add to the fiscal deficit.
S&P 500 remained bullish for the first quarter closing at 4,020 up 1.1% for the week and up as much as 7% for the year. Canadian markets had a good week as well clocking a 1.3% gain and finishing on an 8.9% return on a YTD basis. US Ten Year yields came in 7bps to close at 1.67%, which is still in the elevated territory and with one-way action, we can see some respite in the sell-off as market participants cover shorts or acquire Treasuries as year/quarter-end pressures abate.