The big debate, not only in the markets, but also in politics is whether the new round of stimulus will overheat the economy.
Bank of America’s research investment committee says no, and brings some new data to the table. First, it cited data from the Census Bureau that showed that of the households that received a $ 600 stimulus check in the first half of February, 73% had saved or paid off debt. Consumer credit also fell unexpectedly in January.
Bank of America also polled more than 3,000 people to ask how they would spend the new stimulus check. Even in the lowest-income category, 53% say they plan to save, pay off debt, or invest.
So what does that mean for investors? Bank of America says it is no longer counting on a temporary inflation recovery. Supply disruptions will be eased as the workforce returns to work, and advances in artificial intelligence and automation could mean fewer industrial jobs to return to. As wage growth accelerates, companies can afford to accelerate research and development.
The research investment committee recommends what it calls prudent yield for bond allocation – high-yield corporate and municipal bonds, leveraged loans, preferred stocks, and convertible bonds have all outperformed the general bond market. For stocks, it says buy small-cap growth when it falls, and the Nasdaq Composite COMP,
at 11,600 (which is 12% lower than Tuesday’s close).
Financial services is his industry of choice as it can win both ways. If Bank of America’s inflation analysis is incorrect, banks would benefit from a steeper yield curve and more residential and credit activity. Banks should be attractive given higher share buybacks and attractive returns.
The buzz
The House of Representatives will vote on the $ 1.9 trillion stimulus plan already approved by the US Senate, after which it will go to the White House for President Joe Biden’s signing. The Congressional Budget Office estimates that $ 1.1 trillion will be spent by 2021.
US consumer price data for February will be the focus of a market suddenly obsessed with the prospect of inflation breaking out.
Maryland has become the latest state to relax many of its COVID-19 restrictions.
According to the South China Morning Post, the US and China are discussing sending their top diplomats to Alaska in an effort to restore relations for the Biden administration.
Pfizer PFE,
and BioNTech BNTX,
agreed to provide 4 million additional doses of coroan virus vaccines to the European Union.
Roblox Corp. scored a reference price of $ 45 per share from the New York Stock Exchange as the tween-centric gaming platform prepares to go public on a direct listing on Wednesday.
Luxury home builder Toll Brothers TOL,
reported a 70% jump in earnings in the first quarter.
The market
After the big boom in technology stocks and bonds on Tuesday, things looked calmer at first. US Equity Futures ES00,
NQ00,
declined slightly, and the return on the 10-year Treasury TMUBMUSD10Y,
sharpened to 1.56%.
Bitcoin Futures BTC.1,
climbed over $ 55,000.
The graph
Portfolio strategists at Bernstein Research divided the economic cycle into four different parts and tested how well different investment style factors fared. Value stocks performed best in the current ‘recovery’ part of the economic cycle.
Related Story: This is what the 2016 Value Rally says about how far the current advance can go
Random reads
Broadcaster John Oliver’s warning to Meghan Markle in 2018 prior to her wedding to Prince Harry turned out to be on the money.
Discontinued books by Dr. Seuss are sold for thousands of dollars in Canada.
There will be a Hollywood movie made of the true story that a bear consumed the value of cocaine from a duffel bag. It did not end well for all Ursine readers of this newsletter.
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