- The House passed President Biden's stimulus bill on Saturday.
- Johnson & Johnson's one-dose vaccine has been approved in the U.S.
- The Federal Reserve has been keeping interest rates very low, which has driven investors to buy bonds.
U.S. bond interest rates fell from their highs, alleviating market participants’ concerns about inflation, and driving the Dow to soar by more than 600 points. The Dow closed at 31,543 points, up 611 points, or 1.98%. The S&P 500 closed at 3,879 points, up 68 points, or 1.8%. The Nasdaq closed at 13,421 points, up 229 points, or 1.74%.
Many Federal Reserve officials have indicated that the rise in U.S. bond interest rates mostly reflects people’s expectations that the new coronavirus vaccination plan will drive economic recovery and additional fiscal stimulus measures.
The US House of Representatives passed the $1.9 trillion stimulus bill proposed by President Biden last Saturday, and is expected to be submitted to the Senate for a vote this week.
Jim Baird, chief investment officer at Plante Moran Financial Advisors, wrote last week:
“Increasingly, it appears that the economy sidestepped a feared hard landing despite a period of soft consumer spending that contributed to negative conditions for parts of the service sector and a surge in layoffs. If anything, it appears that manufacturers may have benefited from consumer spending habits that favored goods over services in recent months.”
There is also good news about the new coronavirus vaccine. The US Food and Drug Administration (FDA) has approved the emergency use authorization of Johnson & Johnson’s single-dose vaccine, and the US Centers for Disease Control has also quickly approved the use of the Johnson & Johnson vaccine.
Johnson & Johnson plans to provide 20 million doses of vaccines by the end of March, with vaccination in the next few weeks as soon as possible.
“This is most likely the end of this temper tantrum and presents opportunities for investors faced with dislocated markets,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.
“The odds are that in the second half of the year when the economy fares better, this theme of a temper tantrum will once again kick in sending shock waves into growth,” Galy wrote.
In terms of European stocks, the British FTSE 100 Index closed at 6,570 points, up 87 points, or 1.35%. The German DAX Index closed at 13,939 points, up 153 points, or 1.11%.
The French CAC 40 Index closed at 5,781 points, up 78 points, or 1.38%. In Italy, the FTSE MIB index closed at 23,114 points, up 265, points or 1.16%.
The Federal Reserve has been keeping interest rates very low, which has driven investors to buy bonds. Bond yields have also gone up, which makes buying a bond a lot more affordable.
However, there is one problem with all this. Inflation is still too high. It is simply too easy to buy something today and pay much more later for the same item. This has caused inflation, so far, to stay on top of the U.S. economy. U.S. bonds are always bought when the markets are lower and sold higher when the markets are higher.
There are three primary reasons why U.S. bond interest rates hitting the highest level ever. These include changes in financial conditions, changes in global economics, and inflation. Global economics also affects the interest rates hitting the highest levels in history.
Oil prices and other commodities are affected by fluctuations in the world market. In the past, oil prices were always increasing because they were expected to increase in the future.
In addition, the U.S. federal budget deficit will increase because of the rising debt. Ultimately, this will hit U.S. bond interest rates.