Market Week: March 29, 2021

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

Stocks ended last Monday mostly higher, as a rise in Treasury prices sent yields lower, which offered a boost to equities, particularly tech shares. The Nasdaq jumped 1.2%, the S&P 500 gained 0.7%, and the Dow rose 0.3%. Small-cap shares underperformed, driving the Russell 2000 down 0.9%. The Global Dow dipped 0.2%. Crude oil prices advanced, while the dollar weakened. Market sectors that gained included information technology, consumer staples, real estate, communication services, consumer discretionary, materials, and health care. Financials, energy, industrials, and utilities fell.

Stocks plunged last Tuesday as investors feared a delay in global economic reopenings following a rise in COVID-19 cases in Europe. Further adding to investor angst was news that the housing sector, which had been soaring, receded in February. Small caps continued to underperform, driving the Russell 2000 down 3.6%. The Global Dow lost 1.2%, the Nasdaq fell 1.1%, the Dow dipped 0.9%, and the S&P 500 gave back 0.8%. Treasury yields and crude oil prices plummeted, while the dollar gained. Utilities (1.5%), consumer staples (0.4%), and real estate (0.4%) were the only market sectors to advance. Materials (-2.1%), industrials (-1.8%), financials (-1.4%), and energy (-1.4%) declined the most.

Last Wednesday proved to be a rough day for equities as losses in communication services, consumer discretionary, and information technology outweighed gains in energy, industrials, and materials. The Russell 2000 and the Nasdaq were hit the hardest, falling 2.4% and 2.0%, respectively. The Global Dow and the S&P 500 each declined 0.6%, while the Dow broke even on the day. The yield on 10-year Treasuries dipped, while the dollar gained. Crude oil prices surged, partly due to the blockage of the Suez Canal by a giant cargo ship.

Melissa MinterMarch 30, 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 29, 2021

Overview

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