“The recession is effectively over” in America, says Michael Wilson of Morgan Stanley. Progress on vaccinations combined with another huge round of fiscal stimulus means “it’s hard not to imagine an economy... on fire later this year”.
Get ready for the Biden boom
By the middle of the week the US Congress was in the final stages of approving a $1.9trn (£1.4trn) Covid-19 relief bill. The package includes another round of $1,400 stimulus cheques to be distributed to US households and extends unemployment support measures. The bill also includes $350bn for state and local governments and targeted support for small businesses, hospitality and airlines.
There isn’t much economic pain left for the relief bill to relieve, says Irwin Stelzer in The Sunday Times. The economy created 379,000 jobs last month. Measures of service-sector and manufacturing activity have roared back since the start of the year. Yet with unemployment still at 6.2%, policymakers say the recovery still needs plenty of support. The result will be an economic “boom that will be heard…around the world”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Stockmarkets are not joining in the fun. The S&P 500 was flat over the past month, while the technology-heavy Nasdaq Composite index has officially entered a correction (defined as a 10% fall from a recent peak), reports Julia Horowitz for CNN. Shares in tech giants have taken the worst hit, with Apple shares 18% off a January high and Amazon down by 12% in six weeks. As tech giants have lagged, cyclical shares have done better. The FTSE 100, skewed towards energy and banks, has gained 3% over the past month.
The cause of the rotation
As John Authers on Bloomberg explains, the “underlying driver” of this “rotation” is the bond market. The yield on the US ten-year Treasury has risen from 0.9% at the start of the year to almost 1.6% this week as investors prepare for economic recovery.
The pricey tech shares that flourished during the pandemic are now being marked down, while higher bond yields make stocks less appealing generally. Bond yields move inversely to prices, so rising yields also mean losses for bondholders. “Broad baskets of US and global government debt have declined more than 3% since the start of January”, says Michael Mackenzie in the Financial Times. That is a big deal in the staid world of bond investing: “The main US Treasury index” hasn’t lost money since 2013. The real “puzzle” is not why bond yields are rising but why they “stayed so low for so long”, says Roger Bootle in The Daily Telegraph. The UK ten-year gilt yield has fallen from 15% in 1981 to 0.7% today. It’s been a long time since bond markets were able, as Bill Clinton’s adviser James Carville once quipped, to “intimidate everybody”. In recent years “bond markets were not intimidating anybody” thanks to quantitative easing: central banks were buying up bonds with printed cash, while “investors fell over themselves to lend to governments – sometimes even at negative rates”. Yet if yields keep ticking up then there could be “many a sleepless night”.
-
Charitable giving and inheritance tax: 7 tips to avoid complicationsGiving some of your estate away to charity can save your family thousands in inheritance tax. But common pitfalls could mean your chosen cause loses out and your loved ones are left with a complex nightmare to unravel. We look at how to do donations right.
-
The UK cities where it’s cheaper to buy a house than rentFor people in some areas of the country, home ownership is a distant dream. But for others it can be surprisingly affordable.
-
Pierre-Édouard Stérin wants to make France great againConservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growthPinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summerThe US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with folliesThe best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuationAEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefullyShares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
