Market Week: February 22, 2021

The Markets (as of market close February 19, 2021)

The stock market was closed last Monday in honor of Presidents' Day. Equities were mixed on the first day of trading last Tuesday. The Dow advanced 0.2% and the Global Dow gained 0.3%. The remaining benchmark indexes lost value, led by the Russell 2000, which fell 0.7%, followed by the Nasdaq (-0.3%) and the S&P 500 (-0.1%). Prices on 10-year Treasuries plunged, sending yields soaring. Crude oil prices climbed over $60 per barrel for the first time in several months. The dollar inched ahead 0.3%. Market sectors were mixed with energy, financials, and communication services climbing, while utilities, real estate, and health care fell.

The Dow reached a record high last Wednesday, a day that saw the remaining benchmark indexes lose value. Energy led several surging sectors on a day when only industrials, materials, and information technology fell. Yields on 10-year Treasuries continued to climb. Crude oil prices soared past $61 per barrel, and the dollar advanced nearly 0.5%. Inflationary pressures seem to be rising as producer prices advanced 1.3% in January and retail sales surged by more than 5.0%. As inflation nears the 2.0% mark, the Federal Reserve may scale back support and rethink the timeline for raising interest rates.

The Dow couldn't keep its streak of positive sessions alive last Thursday, closing down 0.4% by the end of trading. Overall, stocks plunged to the lowest levels in more than a week, as each of the indexes listed here finished in the red, with the small caps of the Russell 2000 taking the biggest hit, falling 1.7%. The Global Dow dropped 0.8%, followed by the Nasdaq, which fell 0.7%, and the S&P 500, which sank 0.4%. Money moved to bonds, driving prices higher and yields lower. Crude oil prices dropped, but remained over $60 per barrel. The dollar weakened. Among the sectors, only consumer discretionary and utilities posted gains, while energy slumped 2.3% on the day.

Stocks edged higher last Friday, with only the S&P 500 closing the day in the red. The Russell 2000 climbed 2.2%, the Global Dow advanced 0.5%, and the Nasdaq inched up 0.1%. The Dow was flat on the day. Materials, energy, industrials, and financials showed strong momentum, each gaining at least 1.0%. Utilities, consumer staples, health care, and communication services fell by at least 1.0%. The yield on 10-year Treasuries climbed higher, while crude oil and the dollar dropped.

Melissa MinterFebruary 22, 2021

Overview

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The year began with the government stymied by a shutdown, and ended with articles of impeachment levied against the president. In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Nevertheless, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.

While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. The third-quarter gross domestic product expanded at an annualized rate of 2.1% — moderately down from 2018's 3.0% rate, yet still strong enough to outpace global economic growth by a considerable margin. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history.

Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best.

Not only did the ongoing trade war affect global economies, but it also impacted domestic business investment, industrial production, and exports. Part of the justification cited by the Federal Reserve for lowering interest rates three times last year was weakness in business fixed investment and exports. As of November, new orders for durable goods were down 1.3% from the same period in 2018, and business (nonresidential) investment fell 2.3% in the third quarter.

The new year begins with a strong stock market and solid economic growth. The Secure Act, passed in late December, should change the retirement planning (and saving) landscape to some extent. However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $980 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.

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Market Week: February 22, 2021

Overview

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