April 26, 2021

Macroeconomic data continue to show a post-winter storm rebound.  While Covid increasingly appears to be under control here in the U.S., India has driven global cases to new highs.  The combination of pent-up demand, stimulus checks, and increasing vaccinations is contributing to economic boom-like conditions.  We continue to monitor mounting inflationary pressures and will be focusing on those companies that have pricing power to protect or sustain profit margins.  The Biden administration is “going BIG” with deficit spending, seemingly attempting to accomplish all of its policy objectives at once.  Meanwhile, we expect the Federal Reserve to continue to maintain its highly accommodative monetary policy for the time being.  We are testing limits of how far we can go with massive deficits, debt and central bank balance sheet expansion with uncertain longer-term consequences.  We are now roughly one third of the way through earnings season and so far both the rate and magnitude of earnings beats have surprised to the upside, driving further upward revisions to S&P 500 earnings estimates.  Bond yields, meanwhile, have taken a breather, providing highly-valued growth stocks (and home buyers) a reprieve for now.  We see stock valuations as full and investor complacency as elevated – preconditions for increased market volatility in the weeks and months ahead.  Risks continue to be an unexpected vaccination snafu or a troublesome new Covid variant, an inflation scare that causes a “disorderly” rise in bond yields, changes in Federal Reserve policy stance, and rising taxes.  However, we remain broadly constructive on the market on the basis of highly accommodative monetary policy, massive fiscal stimulus, increasing vaccinations and rising S&P profit estimates.