Weekly Market Update 03-21-21

Well the old saying held true this week, if you don't like the weather in the desert wait a day, as we experienced winter, spring, and an inkling of summer all in one week. This week I want to focus on a few things-- a look back at the last year and potential going forward, the IRS tax deadline extension, and as always bring you the numbers for this week.

My apologies again as this may be a bit long, as there are a lot of moving parts in the world today and I want to make sure everyone has the information needed to ensure your plan is on track. If you read this and have questions, let's carve out some time to chat this week or next.

First - One Year from the Bottom - What's in Store for Year Two?
March 23 marks the one-year anniversary of the stock market bottom and the end of the shortest bear market on record. Since then, stocks, commodities and long-term bond yields have all traveled a long way as the economic outlook has brightened on the back of the vaccine rollout and the promise of return to normalcy.

Three key forces have been driving stocks to new highs, with the Dow briefly crossing the 33,000 mark last week:

1. The gradual reopening of the economy
2. Fiscal spending of historic proportions
3. Broad central bank accommodation

In our view, these forces will continue to be present in the second year of the bull market. Obviously with many facets of this able to change we will continue to monitor the situation closely and convey to all clients the perspective we derive from our research.

Second - Here are the numbers for this week:
The S&P 500 (-0.8%), Dow Jones Industrial Average (-0.5%), and Russell 2000 (-2.8%) set intraday and closing record highs in the first half of the week, but they eventually ran into selling pressure as long-term interest rates continued to move higher. The Nasdaq Composite declined 0.8%, while the Russell 2000 diverged with a sharp 3% decline.

Starting with the most consequential event this week, the FOMC and Fed Chair Powell struck a dovish and patient tone regarding monetary policy following their two-day policy meeting on Wednesday, which satisfied the market and temporarily calmed down the Treasury market.

Reviewing the highlights and takeaways: There were no changes to 1) the fed funds rate, 2) the median estimate that the fed funds rate would remain unchanged through 2023, and 3) the pace of asset purchases (at least $120 billion per month). Fed Chair Powell said it wouldn't be time to start talking about tapering until the Fed sees actual substantial progress on employment and inflation.

Over the next couple of days, the 10-yr yield flirted with 1.76% amid persisting growth and inflation expectations (Fed won't intervene despite expected transitory inflation pressures this year). Selling interest was further supported by the Bank of Japan widening its trading band around 0.00% for the 10-yr JGB to 50 basis points (from 40 basis points) and the Fed letting the Supplementary Leverage Ratio (SLR) exemption expire on March 31.

The 10-yr yield ultimately settled at 1.73%, or nine basis points above last week's settlement. The higher rates worked against the growth stocks within the information technology sector (-1.4%). The energy (-7.7%), financials (-1.7%), and real estate (-1.0%) sectors also underperformed. The communication services (+0.5%), health care (+0.4%), and consumer staples (+0.2%) sectors closed higher.

Evidently, the energy sector, which dropped 7.7%, was a victim of profit-taking activity after a strong first quarter. WTI crude futures fell 6.3% to $61.45/bbl amid some lingering concerns about the recovery in global oil demand due to Europe struggling with another rise in coronavirus cases.

Economic data was mixed. February retail sales, industrial production, and housing starts/permits data were softer than expected, while the Philadelphia Fed Index soared to 51.8 in March (Briefing.com consensus 23.5) from 23.1 in February. Many think the data will turn more positive in March like the Philly Fed Index, as the $1.9 trillion stimulus package trickles through the economy.

Third - 2021 Deadline Extension
The IRS has announced that the tax filing deadline will be pushed back one month, until May 17, 2021.

The delay follows continued disruption from COVID-19. As a reminder, we saw a delayed start to the 2021 tax season as well. While tax season typically begins on the first of the year, the IRS delayed the start until February 12.
As a reminder about tax extensions, there will no late penalties or fees for tax returns filed up through May 17, 2021 - regardless of how much you may owe. To receive your refund in a timely manner, the IRS recommends filing electronically and setting up a direct deposit.

While this extension isn't unexpected, it may be a welcomed change to many still coping with what is becoming one of the most complicated tax seasons in decades.

Why Was the Deadline Extended?
According to a statement released by the IRS, "This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities."¹

In addition, the American Rescue Plan Act passed in early March, promising eligible Americans $1,400 stimulus payments. The timing of this legislation is tricky, as it fell right in the middle of tax season - many Americans have already filed, while many others haven’t. Because the stimulus payments are actually considered tax credits, any indiscretions or missing payments were initially meant to be resolved when a tax return was filed. It’s possible the extension of the tax filing deadline could, in part, have to do with helping eligible Americans receive or request their latest stimulus payment - although this reason was not specifically given by the IRS in their official statement. If you're concerned about receiving your stimulus payment, your CPA can answer any questions you may have regarding that process.

A Reminder About Texas, Oklahoma & Louisiana
Several southern states faced severe weather towards the end of February, causing mass power outages, food shortages, destruction to homes and more. In response to the natural disaster, the IRS extended the tax deadline to June 15 for the 2021 filing season.² This extension is for Texas, Oklahoma & Louisiana residents only. If you live in these states, your local and state tax deadlines may have been extended as well.

For those who have already filed their taxes, this likely won’t change much. And while a deadline extension can be helpful for many, it’s still important to get your tax return taken care of. If you haven’t already, get in touch with your financial advisor or CPA to review the necessary paperwork for the 2020 tax year.

Upcoming Economic Calendar

1. https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.