Have Bond Yields Already Peaked for This Cycle?
Ever since the Federal Reserve started hinting it was planning to end its ultra-loose monetary policy, bond yields have been falling. That it happened in a booming economy with the highest inflation readings in nearly 40 years has taken a lot of investors and analysts by surprise.
Moving, With Bottlenecks
U.S. economic growth is accelerating as vaccinations rise and social-distancing measures ease, but hopes for a long-lasting spending boom may hit a couple of speed bumps. Vaccine rollouts in major countries are proceeding at different speeds, but stock market performance contradicts what vaccination data would seem to imply for investors. Meanwhile, inflation-adjusted longer-term Treasury yields have risen as investors anticipate stronger economic growth.
Schwab Market Perspective: Disconnection
Hope is high that economic growth will accelerate as more people are vaccinated against COVID-19, but so far economic data has been lackluster. Meanwhile, bond investors are expecting inflation despite signs that the economic recovery’s momentum may be stalling. Why does everything seem so disconnected?
Schwab Market Perspective: A Narrow Path Up
U.S. stocks have continued to climb amid optimism about a vaccine-led economic recovery, but it’s a narrow path—buoyant investor sentiment could easily be deflated by bad news. Although global economic growth has struggled, an acceleration in vaccinations in major countries could support stronger growth in the second quarter.
Schwab Market Perspective: Watching the Wheels
Encouraging news about COVID-19 vaccines has boosted hope for stronger economic growth, kicking off a rotation in stocks and equity sectors as investors look to a brighter future. However, near-term volatility is possible, as we’re not yet out of the coronavirus tunnel.
Elections and the Bond Market
There are many major policy decisions that will influence the outlook—trade, energy, taxes and budget deficits, and pandemic relief. However, it’s difficult to assess how these issues will be addressed post-election, and even more unpredictable how the market will react.