Market Commentary 2/12/21

As the prospects of a post-lock down world take shape, rates are quietly moving higher, while remaining still historically extremely attractive. The CPI inflation numbers were lower than expected. Food prices such as soy and corn, and other commodities such as oil and lumber costs are moving up. If this trend continues, this may hurt consumption and drag down economic growth while also increasing the prospects of higher interest rates.  

Now is the time to take advantage of the exceptionally low-interest rates that were put into place to offset the downside risks of the pandemic. With Covid cases dropping, we are cheering for a return to normalcy, which will also mean a return to higher rates.  

Low interest rates have played a big part in boosting housing and auto sales, as well as boosting growth stocks and more speculative alternative assets such as Bitcoin. If rates move up too quickly, expect the Fed to intervene. The Fed has been clear that they will cheer on inflation while keeping rates low to help “juice” the economic recovery. However, we believe that the Fed will let rates rise to around 1.50% to 1.75% on the 10-year Treasury before considering yield control policy intervention. 

A downward drift in the stock market could also move rates lower. With many stock indexes globally at or above all-time highs, rates could push lower should there be a pullback.