All Time Highs - Part II!

As per last quarter’s newsletter, yes, the markets continue to grind higher with promising vaccine news and another 1.9 Trillion dollars (with a “T”) of stimulus. The Dow Jones Industrial Average ended the quarter up 7.8% while the S&P 500 increased 5.8%, the Russell 2000 small cap index continued at its torrid pace rising 12.4% while the Nasdaq Composite finally came back to earth showing “only” a 2.8% gain. The bond market was the center of attention with both fears of inflation and the promise of 6 or 7 percent GDP growth fueling interest rates higher. The 10-year Treasury moved from .93% at the end of last year to 1.75% by March 31st and the 30-year ended at 2.63% from a December 1.65%. Gold dropped 9.5% for the quarter ending at $1,713.80 per ounce while oil rose 21.93% to $59.16 per barrel. Recapping the extraordinary fiscal and monetary response to the pandemic we have had government packages of $2.2 trillion, $900 billion and $1.9 trillion in addition to the $3 trillion expansion of the Federal Reserves balance sheet and we are probably going to have an additional package in the form of infrastructure spending of as much as another $2.25 trillion. This should keep inflation fears and GDP growth humming along, but who will be buying all this debt? One possible customer could come from overseas. In 2013 43% of the US debt was owned by foreign investors while now it is less than 30%. The Federal reserve maintained 12.5% of the US debt on their balance sheet in 2013, now it rests at 22%. If buyers cannot be found and the Federal Reserve decides not to take any more into their coffers, rates may continue to rise as they did in the first quarter until they are enticing enough for investors to buy. Time will tell if this tests the continual rise of the equity indexes.