Markets fell this week even as economic data was largely positive. Consumer confidence rose, while durable
goods orders and unemployment claims both beat analyst expectations. On the federal stimulus front, it appears
that a bill is likely to pass through congress over the coming weeks. The $1.9 trillion package has had some
of the more controversial and partisan elements removed to help it clear congressional hurdles. On the
COVID-19 front, U.S. infections now may be plateauing, or possibly receding at a slower pace. The 7 day moving
average remains below 70K daily infections, but infections rates were little changed over the week. Some
additional good news on the battle against the pandemic comes in the form of an additional approved vaccine
from Johnson and Johnson, and the company is expected to be able to deliver 4 million doses of their one-shot
vaccine a week.
Overseas, developed markets and emerging markets both fell. European and Japanese markets both declined.
Improving prospects against the pandemic should continue to help lift markets globally over time.
Markets fell this week as investors continue to assess the state of the global economy. While fears
concerning global stability and health appear to be in decline, the recent volatility serves as a great
reminder of why it is so important to remain committed to a long-term plan and maintain a well-diversified
portfolio. When stocks were struggling to gain traction last month, other asset classes such as gold, REITs,
and US Treasury bonds proved to be more stable. Flashy news headlines can make it tempting to make knee-jerk
decisions, but sticking to a strategy and maintaining a portfolio consistent with your goals and risk
tolerance can lead to smoother returns and a better probability for long-term success.
Chart of the Week
February was a rough month for investment grade bonds, as yields rose by the highest percentages since March
2020 during the pandemic sell off. Fears of inflation and faster than predicted economic recovery have likely
helped drive up yields.
Market Update
Equities
Broad market equity indices finished the week down, with major large cap indices outperforming small cap.
Economic data has been encouraging, but the global recovery has a long way to go to recover from COVID-19
lockdowns. S&P sectors returned mostly negative results this week. Energy and financials outperformed,
returning 4.33% and -0.36% respectively. Consumer discretionary and utilities underperformed, posting -4.90%
and -5.05% respectively. Energy maintains its lead 2021 with a 25.88% return.
Commodities
Oil rose this week as oil markets continue to solidify. Energy markets have been highly volatile in the COVID
era, but it appears that further price support may be on the horizon given recent developments. Demand is
still low compared to early 2020, but as vaccinations proliferate, lockdown restrictions in Europe as well as
the U.S. should start to loosen, helping support recovery. On the supply side, operating oil rigs are still
well under early 2020 numbers, but trending upwards. In addition to supply and demand, a weakening dollar is
likely to have a large impact on commodity prices. Gold fell this week as the U.S. dollar strengthened. Gold
is a common “safe haven” asset, typically rising during times of market stress. Focus for gold has shifted
again to include not just global macroeconomics surrounding COVID-19 damage and recovery efforts, but also
U.S. dollar value.
Bonds
Yields on 10-year Treasuries rose this week from 1.336 to 1.405 while traditional bond indices fell. Treasury
yield movements reflect general risk outlook, and tend to track overall investor sentiment. Treasury yields
will continue to be a focus as analysts watch for signs of changing market conditions.High-yield bonds fell
this week as spreads loosened. High-yield bonds are likely to remain more stable in the short to intermediate
term as the Fed has adopted a remarkably accommodative monetary stance, vaccines continue to be administered
at high rates, and major economic risk factors subside, likely helping stabilize volatility.
Lesson to be Learned
"Don’t look for the needle in the haystack. Just buy the haystack."
-John
Bogle
StockPointDigital Indicators
StockPointDigital has two simple indicators we share that help you see how the economy is doing (we call this the
Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).
In a nutshell, we want the RPI to be low on a scale of 1 to 100. For the US Equity Bull/Bear indicator, we
want it to read at least 66.67% bullish. When those two things occur, our research shows market performance is
typically stronger, with less volatility.
The Recession Probability Index (RPI) has a current reading of 28.06, forecasting a lower potential for an
economic contraction (warning of recession risk). The Bull/Bear indicator is currently 100% bullish, meaning
the indicator shows there is a slightly higher than average likelihood of stock market increases in the near
term (within the next 18 months).
It can be easy to become distracted from our long-term goals and chase returns when markets are volatile and
uncertain. It is because of the allure of these distractions that having a plan and remaining disciplined is
mission critical for long term success. Focusing on the long-run can help minimize the negative impact
emotions can have on your portfolio and increase your chances for success over time.
The Week Ahead
This week we will see updated oStockPointDigitalcial unemployment rates as well as non-farm payroll hiring. There
will also be updated PMI numbers as well as a speech by Fed Chair Powell.More to come soon. Stay tuned.