Market Week: March 15, 2021

The Markets (as of market close March 12, 2021)

Stocks opened last week mixed, as cyclicals and value stocks advanced, while tech stocks plunged. The Dow (1.0%), the Global Dow (0.8%), and the Russell 2000 (0.5%) posted moderate gains. The S&P 500 fell 0.5%. The Nasdaq dove into correction territory after dropping 2.4% on the day and is down 11.0% from its all-time high. The Nasdaq sits at its lowest level since November 2020. Among the sectors, utilities, materials, financials, industrials, and real estate rose, while information technology and communication services sank. Treasury bond prices continued to slide last Monday, driving yields higher. Crude oil prices fell, while the dollar advanced.

The market saw a resurgence last Tuesday, particularly tech stocks. The Nasdaq, up 3.7% on the day, enjoyed its biggest rally since November. Treasury yields, which had been soaring, fell back, as did crude oil prices and the dollar. At least for the day, investors moved back to growth shares, possibly targeting stocks that had been avoided as overvalued. The Russell 2000 gained 1.9%, the S&P 500 advanced 1.4%, the Global Dow advanced 0.4%, and the Dow inched up 0.1%. Consumer discretionary (3.8%) and information technology (3.4%) led the sectors. Energy, which had been soaring, dropped 1.9%.

Stocks continued to surge last Wednesday following passage of a $1.9 trillion fiscal stimulus package, encouraging news on the vaccine front, and a lower-than-expected increase in the Consumer Price Index. Other than tech shares, which dipped, pulling the Nasdaq down 0.4%, the remaining benchmark indexes posted solid gains, led by the Russell 2000 (1.8%), followed by the Dow (1.5%), the Global Dow (0.8%), and the S&P 500 (0.6%). The yield on 10-year Treasuries dropped for the second consecutive day, the dollar weakened, while crude oil prices advanced. Energy, financials, industrials, materials, and consumer staples each advanced more than 1.0%.

Melissa MinterMarch 18, 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 15, 2021

Overview

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