Weekly Market Commentary – 3/5/2021

-Darren Leavitt, CFA

US financial markets finished the week with mixed results as another spike in interest rates induced a sharp sell-off in growth stocks.  Inflation concerns were heightened on commentary from Federal Reserve Chairman Jerome Powell and perpetuated the latest rotational trade we have seen in the last few weeks.  A robust February Employment situation report further stoked inflation fears and pushed the 10-year bond yield to 1.61% at one point.  Oversold conditions that saw the S&P 500 down as much as 5% on the week and the Nasdaq down as much as 11% brought in ” buy the dip” buyers mid-day Friday.  The S&P 500 closed 2% higher on Friday to close above its key 50-day moving average of 3822.

For the week, the S&P 500 gained 0.8%, the Dow led with an increase of 1.8%.  The NASDAQ tumbled 2.1%, and the Russell 2000 gave back 0.4%.  The yield curve steepened again, with the two-year note yield increasing one basis point to 0.14% and the 10-year bond yield increasing by nine basis points to close at 1.55%.  Gold continued to struggle despite the increased fears of inflation.  Gold prices fell $29.90 or 1.7% to close at $1698.50.  OPEC’s decision to keep production cuts in place fueled oil prices and the energy sector.  WTI prices closed 7.6% higher than a week ago, closing at $66.09 a barrel.  The energy sector gained another 10% on the week and has been the best performing sector over the last several weeks.

Comments from Federal Reserve Chairman on Thursday on inflation sent the Ten-year bond eight basis points higher and helped catalyze a sharp sell-off in stocks.  The Chairman continued to express that the current accommodative monetary stance was appropriate and conveyed that yield curve management on the long end of the curve was not a tool they would use right now. The Chairman did acknowledge his concerns on the further tightening financial conditions and its effect on the Fed’s employment mandate.

The February Employment Situation Report was much stronger than expected, with non-farm payrolls coming in at 379K versus the estimate of 200K.  Private Payrolls were even more potent, coming in at 465K versus the consensus estimate of 195K.  The Unemployment rate fell to 6.2% from January’s 6.3%.  The Labor Participation rate continued to underwhelm with a reading of 61.4% relative to last January’s reading of 63.3%.  The better-than-expected report comes as more geographies curb lockdown mandates and more individuals are being vaccinated.

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