Market Update: March 22, 2021
Photo by Nabih El Boustani on Unsplash
Economic data for the week included a drop in February retail sales and industrial production, as did several housing metrics. However, several regional manufacturing indexes showed strong gains.
Global equity markets were mixed last week, as continued Covid concerns abroad competed with increasing activity, especially in the U.S., leading to rising interest rates. Bonds continued to lose ground, due to rates ticked higher upon ongoing market inflation fears for the near-term. Commodities were mixed, led by oil prices falling sharply.
U.S. equities continued to experience bouts of some volatility, with a sharply negative Thursday after responding positively to Jerome Powell’s dovish remarks on Wednesday. By sector, results were mixed, with a percent increase in communications on the positive side, while energy fell by -8%, along with a decline in oil prices. Along with losses in financials and technology, real estate also fell a percent, along with the impact of rising interest rates. Despite improving fundamentals due to a more positively-sloping yield curve that improves net margins, financials were sold off due to the Fed announcement that an exemption allowing for lower bank capital reserves would not be extended (lower reserves allow for more capital to be ‘put to work’). Now that the latest stimulus package is in the books, rumblings have started about the potential scope and size of a multi-trillion dollar infrastructure plan, as well as potential tax increases to pay for it (any increase in corporate taxes do not appear to be a primary concern of markets at this point).
In foreign markets, developed nations were flattish in Europe, with the backdrop of lockdowns imposed again in France and trust issues with the AstraZeneca vaccine. This was offset by gains of several percent in Japan, where stocks appeared to be boosted by the state of emergency being lifted in Tokyo. Emerging markets were flat on net, with various returns sharply mixed by country, particularly since several central banks elected to raise interest rates to combat rising inflation pressures.
U.S. bonds fell back last week again, as interest rates continued to tick higher on the long end of the treasury yield curve (even though they fell to near zero on the short-end). Bonds across the board fell back, including investment-grade and high yield corporates to various degrees. There also appeared to be an impact from foreign buying and selling of U.S. treasury debt. A behind-the-scenes result of higher treasury yields is that these have once again become more attractive as safe haven assets globally. If this demand resumes, it could serve to dampen yields, particularly if challenged conditions in Europe continue to keep yields unattractively low there by comparison. Foreign bonds declined in developed markets last week, along with a weaker dollar, but emerging market debt saw gains.
Commodities fell by several percent overall last week, with rising prices for industrial and precious metals offset by a large drop in the energy sector. Specifically, the price of crude oil fell by over -6% to just above $61/barrel. Oil prices fell by a precipitous -7% on Thursday alone, as the potential suspension of the AstraZeneca Covid vaccine threatened demand. U.S. crude stockpiles also increased sharply, which provided additional reason for the price pullback.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.