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Consumer data continues to improve and reinforce the ongoing trend of accelerating economic and inflation data that has been reported for the last several weeks.

Consumer data in the U.S. continues to make steady progress as improving labor market data supports incomes and confidence, which is helping spending.  Personal income data increased by a record 21% month-over-month (m/m), driven by the newest fiscal stimulus benefits.  Employee compensation (wages) increased by 1%, the most since August 2020.  Proprietor’s income (business ownership)...
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Economic growth and inflation data continue to improve, which is leading a rise in equity and commodity prices and a decline in volatility.

Economic data was light this week but continued to point to increasing economic growth and inflation.  The Conference Board’s Leading Economic Index increased 1.3% and all ten components made positive contributions. The Chicago Fed National Activity Index, which is comprised of 85 monthly indicators of national economic activity, increased to the highest level since July...
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Recent inflation and consumer data have been strong, continuing the streak of positive economic data, but some market signals have shifted.

Economic data from the month of March continues to be strong while the market signal trends in April have shifted in certain areas. On the economic front, consumption continues to be very strong, as retail sales data in March increased 9.8% month-over-month (m/m), 14.7% year-over-year(y/y) (fastest pace since February 1979) and is up 22% compared...
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As March economic data continues to be released, the data suggests that economic growth and inflation will increase in Q2 2021.

Our recent posts have been aimed at determining if the weakness in economic data from February and the decline in performance of cyclical and inflation sensitive assets was a sign of a change in the trend that started in November, or if it was just a temporary setback. The economic data this week continued to...
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The economic data and market signals from last week were a positive sign that the weakness in February data was not the start of a new downward trend in economic activity.

We noted last week that February macro data had decelerated and that market signals in March had shifted to favoring defensive assets.  After reviewing several data points, we concluded that the trends still seemed to be positive.   One week is not a long enough period to determine if February was a false signal, but the...
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Market volatility has increased in recent weeks and commodity markets have declined, but the broad set of indicators we monitor suggest that the positive trends from November will likely continue.

There has been a recent bout of volatility in the oil and commodity market that has also impacted parts of the equity market.  When these bouts of volatility occur, they end up being a sign of a transition into a different environment, or they turn out to be temporary and the prior trend continues.  We...
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Inflation rates, as well as assets linked to inflation, are increasing, but future indicators suggest that this will likely only be temporary.

In prior posts, we noted that inflation indicators and assets that are positively correlated to inflation have been increasing.  In February, we also noted that our long-term view is that inflation and economic growth will return to levels similar to pre-2020.  We are finally seeing that in some market-based measures of inflation. One way to...
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Value has been outperforming Growth. However, we believe the more important message in recent performance trends is cyclicals versus defensives.

We have been highlighting the weakness in momentum and large cap technology stocks.  This has led to financial media coverage focusing on Value versus Growth factor performance.  We think the more important signal in recent performance trends is cyclical industries/stocks outperforming defensive.  Since the news broke in November 2020 that a COVID vaccine had been...
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Treasury rates are moving higher, which has historically been positive for equity returns.

U.S. Treasury rates have been increasing for several months and have accelerated in recent weeks.  A narrative has developed that rising interest rates are a negative for equity markets.  We thought it would be helpful to look at the data and see how equity markets have responded to higher interest rates.  We start out by...
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Mega-cap momentum stocks are lagging high beta areas that were negatively impacted by COVID.

Last week there was another increase in equity market volatility as the VIX Index traded above 30 intra-day on February 25th, up from 20 earlier in the month.  Source: Koyfin.   This same trend happened at the end of January.  We reviewed other asset classes to see if the increase in equity markets was being...
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