Written by Norman Isaac Mwambazi

Stocks slightly lower as traders eye Powell, Yellen testimony

Stocks traded slightly lower today afternoon, declining after rising COVID-19 cases abroad prompted an extended lockdown in Germany. Investors also …

Stocks traded slightly lower today afternoon, declining after rising COVID-19 cases abroad prompted an extended lockdown in Germany. Investors also considered commentary from Chairman of the Federal Reserve Bank Jerome Powell and Treasury Secretary Janet Yellen.

The Dow Jones Industrial Average, the benchmark S&P 500, and the tech-heavy Nasdaq traded slightly lower, after fluctuating between mild gains and losses earlier in the session. Treasury yields pulled back further, and the yield on the benchmark 10-year note hovered around 1.64%.

A still-dire COVID-19 situation prompted Germany to extend lockdown for three more weeks earlier today, calling into question the pace of the global recovery from the pandemic.

Shares of COVID-19 vaccine maker AstraZeneca dropped after the U.S. Data and Safety Monitoring Board said the drug maker may have used outdated information and provided an “incomplete” assessment of the efficacy of its COVID-19 vaccine earlier this week.

Though the AstraZeneca vaccine has not yet been approved in the U.S., it has been administered to about 5 million Europeans so far and several African countries are using to on their populations.

Traders were closely eyeing remarks from Powell and Yellen before the U.S. House Financial Services Committee, as the two evaluated the role fiscal and monetary policy have played in the economic recovery coming out of the COVID-19 pandemic. The hearing began at about noon eastern time.

During the testimony, Powell said that recovery is far from complete bolstering the case for a staunchly accommodative policy stance from the Federal Reserve Bank. However, Powell also acknowledged the fact that the recovery to this point has progressed quicker than generally expected in the U.S.

Yellen confirmed Powell’s statements, suggesting that, “we should be clear-eyed about the hole we’re digging out of,” as the economy remains about 10 million jobs short of its pre-pandemic levels.

Powell’s latest remarks add to a constellation of data coming out of the Fed as of late, with the central bank’s latest monetary policy decision having come out less than a week ago.

While the Fed has remained resolute in its messaging that it is too early to even begin considering slowing their asset purchase program or raising interest rates, markets have suggested they need more convincing.

Treasury yields climbed by about 60 basis points over the past two months in anticipation of both a strong economic recovery and of inflation, which some believe might come in faster and prove more sustained than expected and force a near-term Fed move.

Cheryl Smith, the portfolio manager at Trillium Asset Management said:

“I think what the overall market is missing is that there is a big difference between a temporary price increase and a sustained process of inflation. So what investors are reacting to now, is some statements by the Federal Reserve that they are prepared to run the economy a little bit hot for a period of time as a way of jumpstarting the economy back from all the scarring that we have had as a result of COVID.

“And because the market – the bond market in particular – is still very sensitized to inflation 30 years after we last had substantial inflation, they are looking for every single possible place that they can find a price going up, and looking at it and jumping up and down and saying, ‘Wow, there is inflation, it is going to happen.”

“We have been looking for it for 14 years, it hasn’t shown up. I really think the bond market is entirely too freaked out about this and really wants the Fed to go back to the old policy, that at any moment that you saw the slightest hint of inflation, to just shut down the labour market. And that’s really the wrong policy for now.”

According to credit card spending data from JPMorgan Chase, consumers are quickly spending money – $1,400 direct checks – directed to them via the $1.9 trillion stimulus package Congress passed earlier this month.

Spending on Chase credit cards jumped by 23.9% year-over-year in the week ended March 19, according to new data JPMorgan Chase released on Wednesday. Year-over-year growth rates on card spending had hovered below 10% in January, for comparison.

Some of the biggest gains in spending took place at supermarkets as people bought necessities, with a rise of 8.2%, and wholesale clubs and discount stores with a rise of 23.7%.

Here is where markets were trading after noon in New York:

  • S&P 500: -0.39 points (-0.01%) to 3,940.20
  • Dow: -29.68 points (-0.09%) to 32,701.52
  • Nasdaq: -38.3 points (-0.29%) to 13,338.53
  • Crude: -$2.71 (-4.4%) to $58.85 a barrel
  • Gold: -$10.00 (-0.58%) to $1,728.10 per ounce
  • 10-year Treasury: -3.1 bps to yield 1.651%.

Source: Yahoo Finance.

Stocks have seen their best 12 months since 1936

Tuesday marks the one-year anniversary of the pandemic-era low on March 23, 2020, when the S&P 500 sank to 2,237.4 as uncertainty around the COVID-19 crisis hit fever pitch.

Since then, the S&P 500 has rallied 76%, marking its best one-year gain in 85 years. This is attributed to unprecedented levels of monetary and fiscal stimulus packages that have been provided throughout the year.

Deutsche Bank strategist Jim Reid wrote in a note thus:

“The S&P 500 has now seen its largest 12-month gain since 1936, exceeding that seen in 2010 after the global financial crisis. The turnaround started two days after the Fed’s momentous March 22, 2020 meeting where amongst other things they offered to buy corporate bonds for the first time in their history.”