Weekly Market Pulse: Peaking? Already?

Things will look a lot better than last year, but that is a pretty low bar to clear. And a lot of people seem to be forgetting that the economy wasn’t exactly ripping before the virus came along. Real GDP growth in 2019 was just 2.2% and the average yearly change in real GDP was just 2.3% from 2010 to 2019. That’s okay, but it isn’t a boom.

Considering that we just added a boatload of debt to that already slow-growing economy, I’d expect post-virus growth to actually be lower than before. But who knows? Maybe the key to economic growth really is as simple as the government writing checks. We seem determined to find out.

Bond yields peaked at the beginning of April and have fallen slowly but steadily since. The drop, however, isn’t sufficient to change the uptrend in rates that started last August. In fact, from a technical perspective, the 10-year yield could fall all the way back to the 1.2 to 1.3% range and still not break the obvious uptrend line – not that I’m saying that will happen:

But falling rates – and it isn’t just the nominal 10-year, TIPS yields have declined, too – are not consistent with the boom narrative that dominates most other markets – especially stocks – today. Neither, by the way, is the recent action in the dollar which looks a lot like the action in bond yields since the beginning of April:

The longer-term picture for the dollar remains range-bound as it has since 2015. The dollar index has basically traded between 90 and 100, with two outlier moves to 103 and two minor forays below 90. Recent action puts it near the bottom of that range:

Current economic data is certainly strong – although not universally so – but the bond and currency markets may be pointing to some weakness ahead. It should be noted that the dollar moves are generally about relative growth and what may be going on here is a shift in the perception of growth abroad. The Chinese Yuan has recently strengthened some and other EM currencies also seem poised to move higher.

The Aussie and Canadian dollars are still in uptrends while the pound and Euro are also acting well. The economic stats out of Europe recently have been better, too. There are some virus hotspots that are not performing well, with India being the obvious one and Japan maybe being a bit surprising.

The rest of the world has lagged behind the US in vaccinations, but with the US well on the way to getting everyone a shot, it may be that the markets are starting to anticipate the rest of the world catching up. If the boom here has been fully anticipated, maybe it hasn’t been priced in yet outside the US -emphasis on maybe.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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