Written by: Tim Benzel
Prior to the pandemic, fixed income investors consistently looked to economic data releases as market moving events. This was especially true for the monthly jobs report, which comes out the first Friday of each month. As one of the timelier indicators of economic health, the report details hiring trends from the month before and includes data on job gains/losses, the unemployment rate and labor force participation.
Fast forward to today, and investors appear to be looking past traditional economic datapoints and focusing on factors that will impact the economic and market environment in 2021 and beyond. Last Friday’s jobs report came in weaker than the prior month and versus expectations, yet the stock market rallied, and Treasury yields rose – the opposite of what would traditionally occur on a weaker print. Why? Investors may have been reacting to positive developments on Capitol Hill regarding an additional fiscal stimulus package, or, hypothesizing that weaker near-term data will cause the Federal Reserve to provide additional monetary support via a shift in their asset purchases to focus on longer-term securities. Or both.
In the end, 2021 appears to be setting up for a nice rebound in economic activity. Recent positive news on vaccine progress, coupled with the prospect for further government support has investors cheering, and in our minds rightfully so. Our focus has and will continue to be positioning portfolios for such an environment and looking through any near-term volatility, should it occur.