Thursday,
February 25, 2021

Market recap

Dow Jones

3,1961.86

424.51 (+1.35%)

S&P 500

3,925.43

+44.06 (+1.14%)

Nasdaq

1,3597.97

+132.77 (+0.99%)

Ford

$12.27

+$0.65 (+5.59%)

Amazon

$3,159.53

-$34.97 (-1.09%)

Lowe's

$162.31

-$6.28 (-3.73%)

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Top Story

Biden Administration Begins Supply Chain Review

Biden’s Executive Order

Yesterday, President Biden signed an executive order calling for a review of supply chains for important materials including semiconductors, pharmaceuticals, and rare earth minerals. The reviews will look into whether the US is producing enough of these materials domestically, or if the country is too dependent on foreign suppliers.

The 100-day review will also examine US supply chain vulnerabilities that include environmental changes and extreme weather. After identifying risks, the Biden administration will work with American companies to build more reliable domestic supply chains.

The Chip Shortage

One of the most substantial supply chain dilemmas facing the US at the moment is the chip shortage. These chips are used in electronics, appliances, cars, and other products.

The pandemic has caused production delays and other problems for chip supply chains. Meanwhile, the work from home boom has caused a surge in demand for laptops, smartphones, and other products that require chips.

The chip shortage has recently placed strain on automakers around the world, including major car companies in the US.

Looking Ahead

General Motors (GM) said that lost production resulting from the chip shortage could lower its profits by up to $2 billion this year. Ford (F) reports that its vehicle output could shrink by up to 20% during the first quarter of 2021. These are the types of situations that the Biden administration hopes to prevent.

As the Biden Administration conducts its reviews, it will also be planning concrete action in an effort to help strengthen American supply chains, create jobs, and prevent problems like the chip supply squeeze in the future. As a spokesperson from the administration said, “Make no mistake, we’re not simply planning to order up reports. We are planning to take actions to close gaps as we identify them.”

What Rising Rates Mean for the Stock Market

Interest Rates Tick Upward

Outside of a minor uptick at the end of 2018, interest rates have been historically low for the past few years. Interest rates fell even further when the pandemic hit. For context, the average interest rate on a 30-year fixed-rate mortgage was about 5% ten years ago. A decade before that it was about 7%. Yet this rate has been below 3% for much of the pandemic.

Shorter term government debt yields like the 10-year US Treasury are even lower. In March 2020, the 10-year US Treasury yield hit 0.3%, a record low.

With that said, in recent weeks interest rates have been ticking upward. As a result, bond yields are rising and investors are now worrying about inflation. Some believe that too much fiscal and monetary stimulus will cause the economy to overheat. This could cause inflationary pressure which might cause the value of the dollar to fall.

Stock Market Recovers From Recent Losses

These recent trends—rising bond yields and concerns about inflation—have put downward pressure on the major stock indices over the past several weeks. This is partially because, when bond yields rise, they can become a more attractive investment compared to stocks.

Investors are also concerned that companies that relied on low rates to borrow money might have a harder time paying the interest on their outstanding debt. Mega-cap growth stocks like Apple (AAPL), Amazon (AMZN), Google (GOOGL), and Tesla (TSLA) have felt the most pressure. Their weakness has weighed on the Nasdaq Composite Index in recent trading sessions.

However, major stock averages traded higher yesterday as investors parsed through commentary from Federal Reserve Chairman Jerome Powell, who offered reassuring remarks to equity investors. He said that easy monetary policy is likely to stay in place because employment and inflation are still below the central bank’s goals.

Looking Ahead

Powell said that the central bank is “committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible.” He also expressed that he does not believe current inflation trends are a threat to the economy.

The Fed changed its approach to inflation last year to include a policy of allowing inflation to average above 2% for a certain period before tightening policy.

While rising rates will certainly be on investors’ radar in light of the new stimulus bill that is working its way through Congress, Powell’s comments eased concerns—at least for the near term. The central bank’s policies are designed to keep interest rates low, which will make borrowing for both companies and consumers more affordable. This is meant to spur economic growth which could benefit people with mortgages and other debt.

The housing market has been an important part of the economy’s health and recovery. For now it appears that the Fed does not want to hamper that.

What Rising Rates Mean for Student Loans

If you have student loans, you may be wondering what to do: should you refinance your education debt while rates are still near historic lows? It depends on your specific situation, one factor being the type of loans you have.

Federal student loans are funded by the government, with terms and conditions that are set by law. Private student loans are funded by private organizations such banks, credit unions, and state-based or state-affiliated organizations, and have terms and conditions that are set by the lender.

Refinancing won’t be the right choice for everyone. Refinancing federal student loans eliminates them from the federal benefits and borrower protections—including the current CARES Act payment and interest relief. But for borrowers with private student loan debt, refinancing could lock in a lower interest rate and help save money over the life of the loan.

Consulting with a financial professional could be helpful as you determine which repayment strategy fits best with your financial goals. You can also use SoFi’s Student Loan Refinancing Calculator to see how much you could save by refinancing your student loans.

If you’re interested in student loan refinancing, check your rate in the SoFi app.


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Checking in on Amazon’s Online Ad Business

Amazon’s Ad Revenue Surges

Amazon’s power in the ecommerce space is translating into advertising. Amazon made about $13.5 billion from advertising during the first three quarters of 2020, which is up from $9.3 billion during the same period a year earlier. This is small compared to Amazon’s revenue from retail sales and Amazon Web Services, but it is still an important and growing branch of Amazon’s business.

Marketers have slashed their ad budgets during the pandemic—especially for more traditional forms of advertising, like billboards and radio. But ecommerce advertising spending has boomed.

Staying Ahead of the Competition

As ecommerce advertising grows, Amazon is eager to stay ahead of more traditional retailers like Walmart (WMT) and CVS (CVS), which are also vying for attention from advertisers as they build their ecommerce operations.

To maintain its ecommerce ad dominance, Amazon has begun to offer advertisers a variety of tools. It recently launched a service that allows brands to easily create their own video content to be used in ads. There are also a number of third-party companies which help marketers navigate Amazon using data and other tools.

Pandemic Trends May Be Here to Stay

Amazon also owns Twitch, a live streaming service which was originally focused on video games but has expanded to reach other audiences during the pandemic. Online advertising on Twitch has seen significant growth. Twitch gives Amazon a channel to reach younger consumers who might not see ads on its main site.

Analysts predict that online shopping habits and the ecommerce ad trends which have developed during the pandemic may be here to stay, even as more people receive COVID-19 vaccines and can return to brick-and-mortar stores. Amazon will need to keep innovating as other companies strive to gain market share in this growing industry.

Not-So-Breaking News

Financial Planner Tip of the Day

“While required payments on federal student loans are paused, borrowers are still able to make payments on their loans if they so choose. 100% of payments made during this time will be applied to the principal balance of the loan.”

Brian Walsh, CFP® at SoFi

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