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“Mr. Rogers” Talks Taxes

As we all know, this has been a crazy year. With this, Congress and both Administrations, have enacted a few laws to help America weather the storm and update certain standards over the last year. There has been the “CARES Act,” the “SECURE Act,” and the “American Rescue Plan” that may have impacted you. Check out this week’s commentary for more information from our very own Jon Heideman aka “Mr. Rogers.”


  1. Equity Markets – rose this week with U.S. stocks (S&P 500) up 2.72% while international stocks (EAFE) gained 1.48%

  2. Fixed Income Markets – also saw gains this week with investment grade bonds (AGG) up 0.12% while high yield bonds (JNK) were up 0.22%

  3. Vaccine Rollout Ramping Up – The daily dose rate has now stayed steady above 3 million and led to President Biden’s announcement this week that all American adults would be eligible for a vaccine by April 19. If the current rate continues, 75% of the American population is expected to be inoculated by July. Meanwhile in Europe progress has been slower, with current estimates suggesting roughly half the adult population in expected to be vaccinated by the end of June.

  4. Fed Remains Dovish – According to FOMC minutes released this week the Federal Reserve policy makers remained united in the view that the U.S. economic recovery is far from complete. While the labor market continues to show improvement, the economy still remains below the Fed’s goal of full employment and sustainable 2% inflation.

  5. Key Insight – [VIDEO] As we all know, this has been a crazy year. With this, Congress and the Administrations have enacted a few laws to help America weather the storm and update certain standards over the last year. There has been the “CARES Act,” the “SECURE Act,” and the “American Rescue Plan” that may have impacted you. Check out this week’s commentary for more information from our very own Jon Heideman aka “Mr. Rogers.” [ARTICLE] After another week of strong equity returns we walk you through the numerous reasons behind it, including catching you up on some of the important fundamental data that is not only driving the market higher but quite spectacular in its own right.


It’s been a relatively uneventful week with strong equity returns after yet another attempt by the news media to freak everyone out last week regarding the travails of another hedge fund meltdown.

The reasons for the continued strength are numerous, from a still accommodative Fed to ever-improving COVID numbers and vaccine distributions, but this week I thought I’d catch you up on some of the important fundamental data that is not only driving the market higher but is quite spectacular in its own right.

A look at the data both here and abroad shows tremendous strength across a number of different aspects of the economy. This is summed up well with Bespoke’s Economic Indicator Diffusion Index which they summarized by saying “while our Economic Indicator Diffusion Index is well off its record highs from last fall, the most recent reading remains firmly in positive territory at a level of +15. The Diffusion Index has been positive on just under 85% of trading days over the last year - the highest reading in the last twenty years.”

For those that have a hard time accepting good data they continued by pointing out that while “It may be tempting to look at the consistently stronger than expected economic data as a contrarian signal, but market performance following similar periods hasn't borne that out.”

The number that really kicked off this week’s strength and a new leg up in optimism was the jobs report that came out last Friday while the market was closed for the holiday. The number blew away expectations with US Jobs up 916,000 in March. A look at the payroll data showed these gains came from across industries, but in particular were led by a 280,000 surge in leisure and hospitality. But good news came from all corners:

  • Construction employment jumped 110,000 after dipping in February largely due to some severe winter weather,
  • Education employment also climbed as more schools reopened,
  • Manufacturing employment increased by 53,000 last month, the biggest advance since September, and finally but importantly
  • a record number of small-business owners reported job openings in March.
  • All the constituent indicators showing notable increase, again with Employment notching a 3Y high and Current Production the highest since 2004
  • New Orders rose to 68, the highest level since 1982
  • Supplier Delivery Times were the highest since 1974
  • Prices Paid were largely flat sequentially, holding at 13Y Highs.

A look at the most recent macro-economic data suggests this employment strength is likely to continue, as the numbers continue to not only be strong but post all-time highs.

ISM Manufacturing Data

Christian Drake summarized last week’s blockbuster ISM report stating,

“In support of the latter, the ISM rose +3.9pts to 64.7 to close 1Q, marking an almost 4-decade high which, basically by definition, makes it historically epic.”

ISM Services Data

Right on the heels of a blowout manufacturing report, the services data also came in posting a number of all-time highs from both the headline number and many components. Also, from Hedgeye’s Christian Drake, “Headline ISM rose +8.4pts to a New ATH at 63.7 while New Orders jumped a cartoonish +15.30 pts sequentially to an ATH at 67.2. Current Activity surged +13.9 pts to 69.4 while employment and Prices also realized notable gains.”

Global Data

Unlike many of the recent years, this strength is not limited to the data out of the US. Global Manufacturing PMIs for March were also very encouraging with Japan posting a 52.7 versus expected 52.0, Eurozone posting a 62.5 vs. 62.4 and UK at 58.9 vs. 57.9. All signaling strong growth in their economies and helping to reassure global equity markets that the long-awaiting synchronized recovery is still very much ongoing. 


While all-time highs in equity markets and surging consumer confidence numbers (such as the most recent report which jumped from 90.4 to 109.7 for its biggest monthly gain since 2003) may cause contrarians to worry the end is near, there is good reason to believe that is not the case. As Bespoke noted, “The surge in confidence is a good sign the economic recovery continues. Stimulus checks, vaccinations, and the reopening of the economy should help improve confidence going forward.” (see chart below)

Another important data point to consider is that while equities continue to make new highs, many investors actually remain pretty conservatively positioned which can be a catalyst for further gains. This surprising stat was discussed by Keith McCullough of Hedgeye who pointed out, “You can see that by measuring and mapping The ROC (rate of change) of Net Positioning via futures & options contracts. As of last week, there was a net SHORT position in the SP500 of -44,528 contracts. There were also net SHORT positions of -9,997 and -17,381 in the Russell and the NASDAQ.”

Another important thing to point out is the current trend decline within the volatility index, which after surging to over 70 last year has finally fallen below 20 and this week settled in around 16. This is also a bullish signal over the near-term.

Lest you get too bullish

It’s not all “greenlights” though as Tom Essaye pointed out, “To be clear, all this stimulus (both monetary and via vaccines) is a good thing in an absolute sense (it’s better than no growth). But economic stimulus is no longer 100% virtuous in the eyes of the market. That’s because it will bring with it 1) Higher yields, 2) Rising inflation expectations and 3) Erosion of the idea that the Fed will be on hold for the entirety of 2021 (more on that in Currencies & Bonds). Additionally, all this stimulus is being used to offset and usher in tax increases on individuals, corporations and investments.”

He also discussed the eventual potential downside of such strong data and employment growth stating that “the U.S. economy added nearly 1 million jobs in March. And as the economy continues to reopen, it’s not unreasonable to think that pace of job adds can continue. Point being, by the time it’s the end of the summer (August) the U.S. could recover something close to half of the 8 million pandemic-related job losses. That would bring total U.S. non-farm pay-rolls equivalent to the levels in mid 2018, which is a time when the Fed was raising rates.” The concern he notes is at that point the Fed may have to at the least acknowledge that it will need to taper its quantitative easing measures.

For their part, the Fed seems to be sticking to their guns regarding rates and bond purchases with this week’s minutes stating, "Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then."

At some point inflation (which was mentioned 64 times in their minutes and continues to show in the data like Friday’s PPI which came in +4.2% year over year) and the strength of the economy (see above) will force the Fed’s hand and once that occurs bond and stock volatility will likely rise dramatically from today’s levels. That isn’t said to scare, just to prepare.

Have a wonderful spring weekend,

Tim and team at TEN Capital

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