Treasury yields edged higher on Friday. The US Treasury Secretary has flaunted the reflation potential of fiscal stimulus. There is little (‘intellectual’) opposition to Bidenomics, with FOMC chair Jay Powell endorsing (indirectly) the current administration’s efforts.
The big story (apart from Trump’s acquittal) has been the rebound in semi-conductor company share prices, and the surge in spot oil. Energy stocks led the rise in the S&P 500 last week, followed by IT.
The rise in energy prices is feeding into higher inflation expectations. The University of Michigan expected change in inflation rates for one year has climbed to 3.3% (February), the highest since July 2014. The break-even curve (highlighted last week) has inverted further. The policy combination – very loose monetary, very loose fiscal – is currently supportive for stocks.
The big issue for stock markets remains valuation and day trading. Critics worry that YouTube, Reddit and Robinhood are creating asset bubbles and the so-called ‘meme stock market.’ “Listening to social media chat” and launching an exchange traded fund to track the buzz is an indictment of these questionable trends.
Summary
• Short-term inflation expectations rise
• Break-even curve inverts further
• Beware stock market euphoria, Tesla
