Inflation on the Horizon?
by Zach Marsh on Feb 19, 2021
Just a short note today. This week we saw bond prices tumble as yields continued to push higher, with the benchmark 10 Year US Treasury yield closing at 1.34%. Commodity prices continued to extend their recent gains. Copper prices gained over 7% and WTI Crude gained 5% by mid-week before giving back those gains over the past two sessions. We may be seeing the beginnings of inflationary pressure start to emerge in the market, which would have negative implications for both bond prices, and potentially causing some tremors in the stock market. Many of the leading stocks over the past 5 years have been technology companies which benefit from low interest rates. Most participants in the market still feel that the Federal Reserve is in charge of this market and that they will be able to maintain their control over interest rates. However, if inflation does start to flare up sooner than they expect or want, we may see dramatic moves higher in interest rates, which is not what anyone in Washington wants to see right now.
Much of this may be off in the future, but that doesn’t stop the market from getting nervous now. The moves in rates this week and commodities can help explain the underperformance of the Nasdaq 100 index, which shed 1.6% this week. The commodity market may, for the time being, be getting a bit ahead of itself, but longer term the wind should be at their back with large spending packages being tossed around in D.C.
Thanks for reading,
Zach and Dave
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