Market Week: March 1, 2021

The Markets (as of market close February 26, 2021)

Stocks opened last week mixed to lower. Only the Dow (0.1%) and the Global Dow (0.2%) were able to eke out minimal gains. The Nasdaq plunged 2.5% amid a tech sell-off. The S&P 500 fell for the fifth straight session, dropping 0.8%, and the Russell 2000 lost 0.7%. Energy surged, climbing 3.5%; financials, industrials, materials, and real estate also gained. Information technology (-2.7%) and consumer discretionary (-2.2%) sank. Treasury yields jumped higher. Crude oil prices increased $2.45 to $61.69 per barrel.

Large caps improved last Tuesday, lifting both the Dow and the S&P 500 to marginal 0.1% gains. The Global Dow climbed 0.3%. Tech stocks fell, pulling the Nasdaq down 0.5%, while the Russell 2000 gave back 0.9%. Crude oil advanced again, while Treasury yields and the dollar fell. Investors took some solace from Chairman Jerome Powell, who offered assurance that the Federal Reserve would move patiently and offer ample notice before it begins to firm monetary policy. Among the market sectors, energy led the way, adding nearly 1.6%. Only consumer discretionary, health care, and information technology lost value.

Stocks rebounded robustly last Wednesday following Federal Reserve Chair Jerome Powell's reaffirmation that the economy in general, and inflation in particular, have a long way to go before reaching levels sufficient to scale back the accommodative measures currently in place. Encouraging news of an expected rollout of a new COVID vaccine from another manufacturer added to positive vibes for investors. Energy, financials, industrials, and information technology helped drive the benchmark indexes higher. The Russell 2000 climbed 2.4%, followed by the Dow (1.4%), the S&P 500 (1.1%), the Nasdaq (1.0%), and the Global Dow (0.8%). Ten-year Treasury yields advanced, as did crude oil prices, which soared to $63.30 per barrel. The dollar was generally mixed.

Melissa MinterMarch 1, 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: March 1, 2021

Overview

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