This article is part of Wellesley Hills Financial’s Market Movements series, found in our weekly newsletter
March 20th marked the first day of spring. With temperatures climbing and one out of every five Americans having received at least one dose of the COVID-19 vaccine, for many this spring marks the end to what has felt like a yearlong winter. Along with this change, investors across the globe are anticipating that the pent-up demand driven by COVID-19 will finally translate into a pick-up in consumer spending.
This topic was at the heart of the remarks made by the Federal Reserve this past Wednesday. Despite the anticipated increase in inflation over the coming months, the Fed reaffirmed its commitment to holding interest rates near-zero through at least 2023. (For those who did not live through the 1980’s, the Federal Reserve increases interest rates during periods of high inflation in order to encourage consumers to save their money, rather than spend it and exacerbate the issue). Upon the news, the S&P buoyed a full percent between 2PM and 3PM Wednesday afternoon. However, by the next day, it became clear that financial markets believe inflationary pressures may force the Fed to tighten monetary policy earlier than anticipated.
Between the Fed’s 2PM announcement Wednesday and the market’s closing Friday afternoon, the yield on 10-year US Treasury bonds increased by 0.06%, briefly reaching a 14-month high of 1.75% on Thursday.
The news has been flush with stories discussing how an increase in interest rates may hurt growth stocks and drive growth-equities into the red. However, it is important to remember throughout any potential downturn in the market, equities may in fact be falling because consumer spending is picking-up, a silver lining for business owners across the country.