By: Jeff Anderson, CFA
This Week: The strength of the S&P 500 continued this week, closing at 4,697 which amounts to a weekly gain of 2%. The yield on the 10-Yr US Treasury note closed at 1.45%, retreating from above 1.6% a couple of weeks ago. Crude oil softened a bit, closing at $81.37 per barrel, off 2.2% for the week but still 68% higher for the year. Employment numbers today showed continued strength in the US economy, with the unemployment rate falling to 4.8%. However, the labor participation rate, for workers aged 25 to 54 stood at 81.7%, down 1.2% from its February 2020 level.
This Issue:
- Market Update
- Higher Rates on the Horizon?
- Flying High
- Taxes on Polluting Goods-Steel, Chemicals and Cement

Higher Rates on the Horizon?
Economists are pricing in higher interest rates for the US, with rate hikes coming as early as next year. Inflation pressures have proven to be “transitory for longer” and the Fed has telegraphed its playbook. First comes tapering, where they will reduce their asset purchases by $15 billion per month starting this month until they wind it down entirely by mid to late next year. At that point, if the economy is healthy enough, and inflation is still elevated, they will begin tightening. The chart provided by Bloomberg shows the magnitude and timing of these expected rate hikes. The other chart shows the Fed’s Asset Holdings. Remember, rate hikes are not necessarily negative. It typically signals a growing economy where the demand for credit is healthy. If the economy weakens materially during the taper, they may pause and consider different measures. The one thing the Fed doesn’t want to do is surprise the market. The market hates surprises.


Flying High
This week, Bloomberg put out an interesting article on the airlines. As oil prices continue its torrid pace, airlines are increasingly hedging their fuel exposure. Typically, airlines lock-in future fuel purchases to avoid having to pay higher prices if oil prices go higher. Unfortunately, this backfired last year when the pandemic shut down the economy. Oil prices crashed, leaving the airlines on the hook for billions of dollars. Now that the economy is healthier, more people are flying, and demand is rising. They are hedging a smaller percentage of their fuel bills, “meaning they are less insured against a surge, but equally less at risk of another demand implosion.”

Taxes on Polluting Goods – Steel, Chemicals and Cement
Whatever your position is on climate change there is no denying that the world’s economy is going green. Capital, once easily available for the fossil fuel industry has been increasingly diverted to renewable energy projects. Unfortunately, this has become an increasingly tense political debate. States where fossil fuels are a large part of their economies are pushing back, as this shift puts downward pressure on employment. Wind and solar projects are being constructed in other states, leaving those states with a challenge: how to grow while their major industries are retreating.
George David Banks, a veteran Republican environmental policy official who worked in the Trump White House and is now promoting carbon tariffs, said, “Once Republican voters recognize that this is the way of getting our supply chain back to the U.S., I think people are going to see the climate agenda very differently.”