Weekly Market Update 03-06-21

It is starting to feel like spring with temperatures in the 70s this weekend and it seems for the next few days as well. While this week likely felt a lot worse than it actually was when it comes to the overall aspect of the market, continued volatility is likely to be present as the market works its way through some of its growing pains. Inflation and potential of another round of stimulus will likely be the headline news of this week. With spring cleaning upon us, I always suggest this may be a good time to revisit where we are, and look at your specific plan. If that is something you would like to do, please reach out and I will make sure I clear some time in my calendar in the coming weeks.

Now on to this week’s numbers:

The wrestling match between the stock market and interest rates continued last week, with rates temporarily coming out on top as yields moved up and stocks pulled back. Last week's reaction signaled what appeared to be two emerging views among investors: 1) a view that higher interest rates and higher stock prices can't coexist, and 2) a view that the dip in stocks was severe and a sign of a new direction for the market.

A bit of perspective on both counts is necessary. On view No. 1, rates are higher, but they are not high. Ten-year rates did rise significantly last week, and yet that simply brought them back to where they were a year ago. Moreover, at 1.6%, 10-year interest rates are roughly half the 3.1% average of the last 20 years1. On view No. 2, while headlines used words like "sell-off" and "turmoil" to describe the move in stocks, the S&P 500 dipped by just 3.4% from Monday's closing high to Thursday's closing low1.

In any event, after sharp and steady gains over the past year, the stock market's mood may feel like it's changed in recent days, with the conversation shifting from reopening and stimulus to inflation and interest-rate risks. Does this signal that the market may be peaking? In our view: no. The terrain is a bit more rocky and the air is a bit thinner at this altitude, but we don't believe the market has reached the summit.

The S&P 500 increased 0.8% in this volatile trading week. The Dow Jones Industrial Average outperformed with a 1.8% gain, while the Nasdaq Composite (-2.1%) and Russell 2000 (-0.4%) continued to cool off from overheated conditions. Higher interest rates were blamed for the underperformance of the Nasdaq, which fell 2.1%.

The energy sector (+10.1%) climbed 10%, buoyed by higher oil prices ($66.09, +4.64, +7.6%), and the financials (+4.3%) and industrials (+3.1%) sectors followed suit with solid gains. The consumer discretionary (-2.8%), information technology (-1.4%), and real estate (-1.4%) sectors were the lone holdouts.

The week started as well as anyone could have anticipated. Each of the major indices rallied at least 2.0% after the FDA authorized Johnson & Johnson's (JNJ) COVID-19 vaccine for emergency use, the House passed the $1.9 trillion stimulus bill (handing it over to the Senate), manufacturing PMIs for February out of the U.S., Europe, and Japan exceeded expectations, and Warren Buffett reminded investors to "never bet against America" in his annual shareholder letter.

Risk sentiment was further supported by new expectations from the Biden administration to have vaccines available for every adult by the end of May, versus prior guidance of July.

Investors, however, sold into strength as long-term rates resumed their recent ascent. From the week's intraday high to the week's intraday low, the S&P 500 was down about 5%, and the Nasdaq was down about 9%. The 10-yr yield briefly matched last week's intraday high of 1.61% before settling at 1.55%, or nine basis points higher from last week.

The spike in rates was catalyzed by persistent expectations for economic growth and inflation, an acknowledgment from Fed Chair Powell that the Fed will not intervene in the Treasury market right now to control longer-dated yields, and by stronger-than-expected jobs growth in February.

Nonfarm payrolls increased by 379,000 (Briefing.com consensus 200,000), and nonfarm private payrolls increased by 465,000 (Briefing.com consensus 195,000). Both followed strong upwards revisions for January.

Selling into strength eventually gave way to the classic buy-the-dip mindset at the end of the week, especially when considering that the underlying stock moves were far steeper than the index declines. This rebound helped the S&P 500 close positive for the week and above its 50-day moving average (3822).

Upcoming Economic Calendar

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.