January – February 2021

U.S. Economic and Market Highlights

The Economy:

  • Consumer confidence rose in the U.S. as positive economic news released in February indicated faster than expected economic growth in 2021.
  • The manufacturing index (ISM) rose in February to a 3-year high of 60.8 from 58.7 in January. The unemployment rate dropped to 6.3% from 6.7%. Existing home sales reached their highest level since 2006 as Americans took advantage of historically low mortgage rates.
  • Stronger economic growth in combination with government policies to increase spending led to moderately higher inflation and bond yields. 
  • The Federal Reserve’s new policy to tolerate higher inflation will likely accelerate the rise of long-term interest rates, steepening the yield curve, as short-term rates remain at all-time lows until at least 2022. 
  • Economic growth in the Eurozone is slower with mixed results from different countries. Difficulty has come from the second round of lockdowns, delayed distributions of COVID-19 vaccines, and slower progress with the post-pandemic economic recovery. 
  • The European Central Bank is not likely to be concerned about inflation. They are more likely to be concerned about rising long-term yields and increased value of the Euro versus the U.S. Dollar, which makes European exports and oil prices more expensive.

Fixed Income:

  • The 10-Year U.S. Treasury Bond yield briefly reached 1.60% at the end of February before declining slightly. Mortgage rates also rose because they have longer maturities.
  • Higher interest rates,since the beginning of the year, resulted in negative returns for February and year-to-date in most fixed income asset classes. (See Market Tracker below.)
  • Bond yields now exceed the S&P 500 stock dividend rate for the first time in over a year.
  • Short-term rates are expected to remain low as Central Banks around the world remain vigilant in their concern about economic recovery and enabling adequate liquidity in the capital markets.
  • U.S. Banks are a primary beneficiary of the Federal Reserve’s bond buying program. Certain high-quality assets on the purchase list provide a stable source of funding and potential loan loss reserves in case banks have to manage through another economic downturn.
  • High yield corporate bonds and bank loans outperformed since the beginning of the year, amid building expectations for a robust global economic recovery in 2021. Emerging markets bonds have benefitted in recent months from the declining U.S. Dollar exchange rate.


  • Stock markets continued to rally on a combination of factors including: economic recovery, positive news about COVID-19 vaccines, more government financial aid and stimulus, and positive corporate earnings reports.
  • Value stocks outperformed growth stocks in February by the largest margin since 2001. Confidence in the economy, lower price valuations, and rising long-term interest rates helped support value stocks, especially in the financial, energy, and material sectors. 
  • Small and mid-cap stocks outperformed large-cap stocks in February.
  • Crude oil prices rose above $60 a barrel in February, for the first time in more than a year and have stayed there, as global demand increases and oil supply tightens, due largely to production cuts from OPEC and allied producers.
  • Bitcoin surged over 20% to all-time highs buoyed by Tesla’s (TSLA) announcement of a $1.5 billion investment in the digital currency.

This communication was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.