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Insights & Manager Commentary

Churchill Management - Commentary

by Craig Love, on March 09, 2021

The stock market experienced its first significant bout of selling since the fall. The damage, however, was mostly confined to Tech and Growth related names. 

On the surface, the action appears to reflect a big rotation from the high-flying Growth names over to many of the recovery stocks, most of which are considered Value plays. 

The case for the recovery stocks is more compelling today than it has been for some time, especially with Biden’s announcement of having enough vaccines for all adults by the end of May.

Along with expectations for a heated economy came higher interest rates. We saw the 10-year Treasury move higher, from 1.17% to 1.55% over the last month.

It appears many investors are concerned about inflation. The rationale is that there will be pent-up demand once the economy reopens. In addition, that excess demand will run up against reduced supply from the pandemic, resulting in higher prices as more money chases fewer goods.

Federal Reserve Chair Jerome Powell stated that he expects inflation to rise on the reopening of the economy but believes higher inflation will be transitory and not something persistent over the longer term.

In sum, while the Fed has not yet moved to become more stimulative by fighting rising rates, it remains committed to leaving financial conditions relatively easy. It is aware of the Fed’s historical penchant to kill bull markets by tightening too much, too fast.

The rout that has taken place with many leading Growth names was not unexpected, as fast and sharp corrections are emblematic of frothy markets.

We are quite mindful that the rotation could also have legs, as the recovery is right around the corner and that could extend the bull market – just in a different area of the market. We will keep our eyes peeled for more clues in the coming weeks and are prepared to act as necessary.



Source: Churchill Management Group 

** This report is meant to inform the reader of our current market opinion, which we, as professional money managers, use in our decision-making. It should be noted that stock market and bond market data are subject to varying interpretations and any one interpretation will not necessarily guarantee investment success. The information obtained from the sources specified herein and used as basis for our current market opinion is believed reliable, but we do not guarantee the accuracy of such information.