Weekly Market Review: Fed Raises Outlook, Maintains Low Rates

The broader market averages fell this week, as long-term interest rates continued to press higher. Energy stocks led the way lower, while more defensive sectors managed small gains.

On Wednesday, the FOMC voted unanimously to hold short-term interest rates at a range of 0 to 25 basis points and continue $120 billion of monthly bond purchases. The Federal Reserve also boosted its 2021 targets for GDP, unemployment and inflation.

The Fed now expects 6.5% GDP growth this year and for the unemployment rate to fall to 4.5%. Core PCE, a key inflation measure, is now seen reaching 2.2% percent growth. That is above the level it was when the FOMC last boosted interest rates in 2018.

Despite the prospect for rising inflation pressure and the increase in long-term U.S. Treasury yields, Chair Jerome Powell doubled down on his stance to keep short-term rates low for the next couple of years. The Fed is willing to tolerate a temporary inflation increase to support a full post-pandemic recovery of the labor market.

Economic Data Mixed

In economic news, February retail sales declined 3% and fell short of expectations, although the January tally was revised higher. February data for industrial production, housing starts and building permits also missed the mark. However severe weather across most of the U.S. last month appeared to be the culprit.

On the other hand, some regional manufacturing data from New York and Philadelphia was outstanding. These reports often go ignored by most investors, but they offered a positive early read on how March is faring. In particular, the Philly Fed’s Manufacturing Index came in at the highest level since 1973!

What to Expect Next Week

Next week will be relatively quiet for earnings action. On the economic front, we’ll get a look at February data for durable goods orders, as well as new and existing home sales.

Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in 2021.

As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.

One such Industrial name is worth a closer look and is our Stock of the Week.

Stock of the Week: Myers Industries (MYE)

The company operates in two distinct businesses: manufacturing plastic containers and distributing tire repair supplies.

The stock gained more than 5% this week. We believe this momentum can continue in the first half of 2021. Here’s why:

This week, two members of Myers’ board of directors combined to purchase nearly $400,000 of stock, on the open market.

There are several reasons why insiders may sell shares in their own company; however, they only tend to buy when upbeat about future business prospects.

To that end, Myers posted mixed quarterly results earlier this month. The company earned $0.11 a share in the fourth quarter of 2020, which missed expectations. On the other hand, revenue increased 18% from a year ago to $137.5 million and surpassed the consensus analyst estimate.

The earnings miss appeared to be a timing issue. Management raised prices after the new year to combat higher input costs, such as resin.

Myers may not be involved in the most exciting industries around, but it is growing profits and leveraged to a global economic recovery, as the COVID-19 pandemic gradually subsides.

It’s also worth noting that the company returns cash to investors through a quarterly dividend of $0.135 a share (2.6% yield). Management can cover the payment 2x with expected annual earnings, which gives Myers room to potentially increase the dividend in 2021.

In addition, the company carries a Smart Score of 8/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.

On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen improving sentiment from analysts and financial bloggers.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.