Welcome to my video presentation for Monday, March 1. My accompanying article below provides greater details.

Interest rates took center stage last week and they’re likely to continue dominating the financial news in the coming days. The rise in U.S. government bond yields has been picking up steam, rattling the equity and fixed-income markets.

Although they’re still scraping historic lows, yields have climbed steadily higher over the last two months because of fears that the improving economy will ignite inflation. We may be in for a respite, however. As of this writing Monday morning, U.S. stock futures in pre-market trading were rising as Treasury yields retreated from last week’s highs.

In testimony to Congress last week, Federal Reserve Chair Jerome Powell tried to assuage investor fears. He said inflation remained “soft” and characterized higher yields as “a statement of confidence” about the economy’s health. But rising yields nonetheless spooked the equity markets (see the following table).

The big question this week: will accelerating economic growth sharpen the sell-off in bonds and continue to pressure stocks?

Read This Story: The Bond Vigilantes Ride Again

Under normal circumstances, the threat of an overheating economy would constitute bad news for stocks. But little is “normal” during this pandemic. Investors who are worried about inflation seem to have forgotten the horrific economic decline last year during the nadir of the COVID-19 crisis.

Yes, interest rates are rising, but for the right reasons. Economic activity, corporate earnings results, and private sector hiring are all expected to strengthen this year, starting in the first quarter. President Biden’s $1.9 trillion stimulus package, the widening distribution of vaccines, and the lifting of lockdowns will create sustained tailwinds.

Last Saturday, the Democratic-controlled House passed Biden’s package, which includes $1,400 personal checks and a $20 billion coronavirus vaccination plan. That’s a major positive for stocks. Odds of passage in the Senate are good.

As of this writing, about 95% of S&P 500 companies have reported fourth-quarter 2020 operating results. Earnings have generally come in better than feared and they’re now growing after three straight quarters of year-over-year declines. The earnings recession is over, which means lofty stock valuations will start to see greater justification.

Stocks got clobbered last week, but valuations are high and a breather was to be expected. I don’t foresee a full-fledged market crash this year, but we may get a correction if interest rates continue their upward ascent. At this juncture, considering the robust run-up we’ve enjoyed since the November election, a correction should be viewed as healthy and a source of buying opportunities, especially in the inflated tech sector.

The post-COVID shopper…

You should rotate into sectors that are poised to thrive when the pandemic has been vanquished. Front and center among these “winners” is e-commerce. The latest numbers show that the health crisis has hastened the structural change in consumer buying habits.

Statista’s Digital Market Outlook, released February 24, estimates that more than 260 million Americans will make an online purchase in 2021. E-commerce sales reached $792 billion in 2020, accounting for 14% of total retail sales, versus 7.3% in 2015 (see the following chart).

Perhaps 14% still seems small to you, but keep in mind, the total retail sales figure includes categories such as motor vehicle dealers, gas stations and grocery stores, where physical in-person buying still dominates. Other categories, notably clothing and footwear, are experiencing substantially higher shares of online sales.

The e-commerce players with the most promise for investors aren’t the mega-cap brand name “story stocks,” but the smaller tech innovators that are bringing artificial intelligence, mobility, and the Internet of Things to the e-commerce realm. The retooled economy in 2021 and beyond will favor the nimble entrepreneurial companies that enhance the consumer experience.

Indeed, despite a wave of bankruptcies in “dinosaur” segments (physical shopping malls, department store chains, etc.), we’ve seen a record number of business start-ups in recent months, especially in boutique retail.

This week, we’re scheduled to get key economic data that will provide further clues as to the consumer’s confidence and by extension the stock market’s direction. The most significant releases occur Thursday and Friday (see table).

Pay particularly close attention to the average hourly wages report on Friday, which will bestow insights into future inflation. “Wage push inflation” can result from an overall rise in wages. To maintain corporate profits after an increase in wages, employers tend to hike the prices they charge for their goods and services.

Whether inflation remains modest in the coming months or flares up to a worrisome degree, one asset class will benefit regardless: commodities. Our investment team has found a raw materials miner that’s uniquely positioned to prosper under the conditions that I’ve just described.

This small-cap mining stock plays a dual role: it’s an inflation hedge that also offers the potential for market-beating profits. The time to purchase inflation hedges is now, before the rest of the investment crowd belatedly tries to get in on the action and pushes up their prices. To learn the details about our commodities play, click here now.

John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link. Send comments and questions to: mailbag@investingdaily.com