Friday's Market Minute: Market In Transition

The market continues to relentlessly price in going back to normal at some point this year. Most forecasters on Wall Street are fixated on the short-term prospects of higher US economic growth following mass vaccination and the new $1.9 trillion recovery package. Wall Street also remains in wait-and-see mode until how quickly jobs come back. The Labor Department reported Thursday that new claims for jobless benefits fell to their lowest weekly level in the last year, a sign that the faster rollout of vaccines and the fiscal relief package are having an effect. Initial claims for state benefits totaled 657,000, a decrease of 100,000 from the previous week and below the four-week trend.

The new round of stimulus is spurring fear of inflation, while interest rates are going higher over time as the economy reopens and business continuity normalizes. Interest rates have stabilized, and bonds are catching a bid. However, rates continue to weigh on richly valued tech stock and the so-called old-economy stocks continue to shine. Anything related to travel, leisure, hospitality, and entertainment has been in favor. Consumer discretionary, restaurants and retailers are discounting opportunities which can go a lot further than most think is reasonable.

There is no doubt the market transition will face bumps in the road. We witness softness in the markets on virus-variant jitters, but buyers step in on weakness as the economy gets closer to a full-scale reopening. Taking a cue from the most recent FOMC meeting, FOMC members want to see an inclusive recovery with both higher inflation and low levels of joblessness before hiking interest rates. When it comes to the equity market, the narrative has shifted from growth to value excluding many of the popular technology stocks like Apple Inc AAPL for now. As equity performance broadens out, is important to note that money is staying within the realm of market. At some point in time, the market will adjust towards a healthy all-inclusive balance of both growth and value.

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