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Market Commentary for the week ending March 6th, 2021

Summary

  • Stocks were very volatile but closed the week mostly higher.
  • The employment report was much better than expected fueling hopes the economy will surge higher post-vaccines.
  • Bond yields continue to climb putting continued downward pressure on technology and other growth-oriented stocks.

 

This Week’s Performance Highlights

Market Indexes week ending March 5, 2021

Source: www.YCharts.com

Markets were extremely volatile this week as investors grappled with continued increases in bond yields, putting downward pressure on stocks, and at the same time digesting multiple economic reports coming in better than expected.

  • At the close of the week large U.S. stocks were higher by +0.9% as measured by the S&P 500 and even better based on the Dow Jones Industrials gaining +1.8%. Although both indexes closed higher they were not without a lot of volatility. The Dow, as an example, had an average daily range of 576 points, the difference between its high and low for the day, with Thursday’s range exceeding 900 points as illustrated in the accompanying graph! This is more than 2.5 times the average range during all of 2019 (a more “normal” year of trading).

    Dow Jones Industrial Average

    Source: www.YCharts.com

  • Although the S&P 500 and Dow both closed higher, the tech-heavy NASDAQ Composite was down -2.1% for the week as technology stocks continued to fall as bond yields climbed higher.
  • 7 of the 10 sectors were higher with energy stocks on a seemingly unstoppable surge higher gaining another +10.0% for the week and up +39.7% in just over 2 months since the start of the year! Financial stocks turned in the second best performance higher by +4.3% with these stocks expected to benefit from higher bond yields and potentially higher interest rates.
  • Small U.S. stocks continue to hold a big lead over large stocks year-to-date but turned in a small loss for the week down -0.3%.
  • International stocks were generally higher across the board with developed country stocks gaining an average of +0.8% and emerging markets inched up by +0.2%. Among the developed markets, stocks in the United Kingdom were among the best performers up +3.0% for the week making these some of the best year-to-date performers in the Eurozone in 2021 with a gain of +6.8%.
  • Commodities continue to be the standout performers among the alternative asset classes up another +3.6% for the week and +19.6% year-to-date. Rising commodity prices are contributing to concerns about the risks of higher inflation in coming months which is partially fueling the rise in bond yields. On the other hand, gold, generally seen as a gauge of inflation, was down -1.7% for the week and -10.8% in 2021. Real estate stocks closed up +0.2%.
  • Bond prices fell further this week losing -0.8% and now down -3.2% for the year. The yield on the benchmark 10-Year U.S. Treasury topped 1.6% before settling at the end of the week at 1.568%. This was up from 1.415% at the close of the prior week in spite of Fed Chairman Powell attempting to calm investor fears of higher rates.

Interesting Numbers

+90.4%

Rocket Companies (RKT), offering home mortgages in all 50 states, went public about 6 months ago and saw its stock go on a wild ride this week. On Monday and Tuesday the stock surged +90.4% then proceeded to give back nearly all of that gain the next 3 days closing the week up +14.9%. This stock was one of the heaviest shorted stocks, bets on it going down in price, similar to that of GameStop (GME) that traded wildly about a month ago. Rocket Companies was featured in top posts on the same WallStreetBets site that was pointed to for the GameStop volatility. Rocket’s market value of $50 billion is more than 5 times that of GameStop suggesting that no stock is immune to such possible volatility.

Source: www.YCharts.com

-$1.247 Trillion

Tesla (TSLA), the dominant electric vehicle company, has seen its stocks drop -32.3% from its late January high of $883 to $598 today. It has suffered one of the biggest declines among big technology driven companies but has certainly not been alone in its pain. The accompanying table shows the 10 biggest declines from earlier 2021 highs among big tech names with losses totaling $1.247 trillion!

Big tech's selloff

Source: www.YCharts.com

Economic Indicators

The economy added more jobs in February than economist expected with the employment report showing 379,000 jobs created on top of the January report that was revised sharply higher from 49,000 to 166,000 jobs added. The private sector accounted for all of the gains adding 465,000 jobs while the government shed 86,000, mostly in education, which is likely a distortion related to the pandemic.

Hiring in the leisure and hospitality sector surged, gaining 355,000 jobs, as the economy continues to reopen and the anticipation of a possible surge in travel. As the accompany graph shows this sector lost 7.4 million jobs in April last year, representing a staggering 46% of the total employed, and has added back jobs in all but 2 months since. In spite of these gains though employment in this sector remains down -3.45 million from the pre-pandemic peak.

Leisure and hospitality change in employment thousands

Source: https://fred.stlouisfed.org/series/USLAH

In a separate report the unemployment rate inched lower to 6.2% although economists and the Federal Reserve all believe the real rate is much higher in the 10% range.

According to the Institute for Supply Management, or ISM, the economy is accelerating with its report on the manufacturing sector showing the fastest growth since the start of the pandemic coming in a 60.8% (any reading above 50% indicates growth). This was not only an improvement over the prior month but also better than economists’ forecasts as all three components of the report improved. There are some concerns that things are overheating with the prices of some items rising sharply due to supply constraints. In a separate report factory orders increased by +2.6% in January.

The services sector continued to grow but at the slowest pace since the recovery began post-pandemic with the ISM Services report coming in at 55.3% down from 58.7% the month before. Multiple components of the report decline but one surged, the price gauge, rising to 71.8% hitting a 10-year high as suppliers are raising prices beyond normal expectations.

Upcoming Economic Reports

  • Consumer Price Index
  • Producer Price Index
  • Initial Jobless Claims
  • Consumer Sentiment Index

Contact Mark A. Patton :